Kenya has sought a new IMF program following the decision not to finalize a review that could have released $800 million. The current $3.6 billion program, aimed to alleviate the pandemic’s economic impacts, is set to expire soon. Kenya’s fiscal targets have not been met, amid rising domestic unrest over taxation efforts.
Kenya has requested a new funding program from the International Monetary Fund (IMF) after deciding against a final review of an existing facility that could have released $800 million. The current $3.6 billion, four-year program, initiated in light of the economic downturn from the Covid-19 pandemic, is set to expire on April 1. Without the final disbursement, Kenya faces a significant budget-financing shortfall.
The IMF stated that both the Kenyan government and its staff have agreed not to pursue the ninth review under the current programs. A formal request for a new program has been submitted by the Kenyan authorities, indicating ongoing discussions between the two parties.
Kenya has struggled to meet essential targets within the existing program, such as reducing the fiscal deficit and enhancing revenue generation. The government’s efforts to introduce new taxes in recent budgets triggered violent protests, resulting in numerous fatalities.
Recently, Kenya repurchased certain eurobonds and issued long-term securities, with plans to utilize approximately $950 million to pay off costly loans owed to the Trade and Development Bank. Furthermore, the country anticipates receiving the entire $1.5 billion loan from the United Arab Emirates, which was originally meant to be disbursed in two phases.
In previous remarks, Treasury Secretary John Mbadi discussed the IMF’s concerns regarding the UAE loan, suggesting potential exposure to foreign-exchange risks and acknowledging that it exceeded the current fiscal year’s commercial borrowing limits. For the upcoming budget year, commencing in July, Kenya intends to reduce the proportion of foreign loans to approximately 18% of the overall total, due to expected lower IMF receipts. The fiscal gap is projected at 4.9% of GDP this year and 4.3% in the subsequent year.
In summary, Kenya’s request for a new IMF funding program is a significant response to its financial challenges, particularly the inability to secure an $800 million disbursement from the existing $3.6 billion arrangement. The government’s fiscal strategies and the impact of foreign loans will be crucial as the nation aims to stabilize its budget amid ongoing economic pressures.
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