Kenya Initiates Negotiations for New IMF Lending Program Following Current Deal Abandonment
Kenya is in discussions with the IMF for a new lending program after abandoning the current one due to increased debt servicing costs. Haimanot Teferra confirmed the receipt of an official request from Kenyan authorities, as the government struggles with financing amidst high debt-to-GDP ratios and recent economic challenges.
Kenya has embarked on discussions with the International Monetary Fund (IMF) regarding a new lending program, opting to discontinue the existing agreement due to overwhelming debt servicing demands stemming from excessive government spending over recent years. Continued IMF financial support is deemed essential for Kenya to maintain its debt repayment obligations.
Haimanot Teferra, the IMF’s mission chief, stated that the Fund has received an official request for a new program from Kenyan authorities. Further discussions between both parties will be held following the decision to halt the ninth review under the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs, which collectively valued at approximately $3.6 billion.
The announcement triggered a decline in Kenyan dollar bonds, particularly for the 2032 and 2048 maturities, which fell significantly. The IMF had previously approved $3.12 billion for disbursement before the end of last October, suggesting that the ninth review might have unlocked an additional $480 million in funds.
While the IMF acknowledged receipt of a formal request from Kenya for a new program, it did not clarify whether this would be categorized as lending or non-lending. Finance Minister John Mbadi announced the government’s intention to pursue a financing program.
The current ECF/EFF program initiated in April 2021 has faced implementation challenges, including public protests against tax hikes and complications surrounding new borrowing from the United Arab Emirates. To address the increasing debt burdens, the Kenyan government is exploring fresh financing avenues and enhancing domestic revenue collection for essential services, including climate change adaptation.
As of June last year, Kenya’s total debt-to-GDP ratio reached 65.7%, significantly surpassing the 55% threshold deemed sustainable. The nation is not alone in its plight; others like Ivory Coast and Angola are similarly engaging with the market to manage their liabilities efficiently, seeking funds to address maturing debts and prioritizing critical expenditures such as health care.
In summary, Kenya is navigating a complex financial landscape as it seeks a new program with the IMF while terminating the current one due to unsustainable debt levels. The government’s strategies include enhancing domestic revenue and improving fiscal management. As challenges persist, Kenya must secure additional funding sources, similar to other African nations, to meet its financial obligations and ensure essential services are maintained.
Original Source: www.straitstimes.com
