Kenya is set to abandon its current IMF program and negotiate a new lending agreement due to economic challenges and rising debt costs. While the exact terms of the new program are unclear, the government is exploring alternative funding sources to address its fiscal shortcomings. This development has led to a drop in Kenyan dollar bonds, reflecting market unease over the country’s financial situation.
Kenya has decided to pursue a new lending agreement with the International Monetary Fund (IMF), discontinuing its current program in light of escalating economic difficulties caused by high debt repayment costs. The nation has been dependent on the IMF’s financial support to address its increasing debt, which has resulted from prolonged government borrowing practices.
Haimanot Teferra, the IMF’s mission chief, indicated that the IMF received a formal request from Kenyan officials for a new program and will continue negotiations. Following discussions in Nairobi, the IMF confirmed the mutual decision to halt the ninth review of the existing Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs.
The existing $3.6 billion EFF/ECF arrangement is set to conclude next month, having disbursed $3.12 billion thus far, with an anticipated additional $480 million, contingent on the ninth review’s completion. However, the implications of ending the review were not clarified by either the IMF or Kenyan authorities.
This announcement led to a decline in Kenyan dollar bonds, with the 2032 and 2048 maturities falling by over 1 cent, now trading at 90.136 and 80.173 cents on the dollar, respectively, marking some maturities at their lowest in six months.
The IMF’s announcement did not mention Kenya’s Resilience and Sustainability Facility, which was authorized in July 2023; by October of the previous year, $180.4 million had been disbursed from the total of $541.3 million.
Details surrounding the impending program remain uncertain, including the nature of support it may provide, whether direct lending or advisory. Kenya continues to face challenges from economic fallout, protests against taxation, and disputes regarding external borrowing, particularly a controversial loan from the United Arab Emirates. The government is actively seeking alternative funding sources to ensure debt compliance and to finance vital sectors such as climate adaptation.
With a concerning debt-to-GDP ratio of 65.7% as of June 2023—significantly surpassing the recommended limit of 55%—Kenya is following the lead of other African nations like Ivory Coast and Angola by issuing bonds to refinance its expiring debts and protect essential public services including healthcare.
In summary, Kenya’s shift towards negotiating a new loan agreement with the IMF marks a significant strategic adjustment amidst overwhelming economic challenges. The discontinuation of the existing programs signifies the urgency of addressing the country’s rising debt concerns, while the potential new arrangement’s nature remains uncertain. As Kenya seeks alternative funding avenues to alleviate financial burdens, its rising debt-to-GDP ratio continues to pose a serious threat to economic sustainability.
Original Source: newscentral.africa
