Kenya Pursues New IMF Lending Program Amid Financial Challenges

Kenya is engaged in talks with the IMF for a new lending program in light of rising debt-servicing costs and fiscal pressure. Despite recent loans, the country is pursuing additional financial avenues while facing public discontent over extensive borrowing and government expenditures. Enhanced transparency and economic reforms are anticipated as key components of the new program.

Kenya’s Finance Minister John Mbadi has confirmed that discussions are underway with the International Monetary Fund (IMF) for a new lending program, as the country copes with increasing debt-servicing costs, fiscal pressures, and declining foreign aid. The current IMF arrangement is set to expire in April 2024.

Although Kenya received a significant IMF loan of $941 million in January 2024, raising total commitments under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) to over $4.4 billion, the nation continues to experience financial difficulties. In June 2024, Kenya repaid a $2 billion Eurobond, which was partially refinanced through a $1.5 billion Eurobond issued earlier in the year. The World Bank has also pledged $12 billion in funding for the country from 2024 to 2026, yet fiscal challenges remain severe.

Minister Mbadi noted that there may be indicators regarding the new program before the current program concludes. In addition to the discussions with the IMF, Kenya is exploring a $1.5 billion commercial loan from the United Arab Emirates, as well as the possibility of issuing another Eurobond to address funding gaps. The freeze on foreign aid from the U.S. administration, which includes USAID funding, has exacerbated the country’s budgetary pressures.

Economist Amboko H. Julians anticipates that the forthcoming IMF program will emphasize policy reforms rather than direct financial aid, potentially adopting a Policy Support Instrument (PSI) that focuses on economic reforms over the next five years. He highlighted the importance of reforming state-owned enterprises and enhancing domestic revenue mobilization, particularly through rationalizing tax expenditures.

Julians remarked that this approach could enhance investor confidence, facilitating Kenya’s access to international financial markets. The IMF has previously advocated for reforms in state-owned enterprises and tax policy adjustments, and these may feature in the new program’s conditions. Meanwhile, public sentiment towards increased government borrowing is negative, heightened by last year’s protests against tax increases.

Despite public dissatisfaction regarding debt accumulation, President William Ruto’s administration continues to initiate expensive development projects. Minister Mbadi has stressed the necessity for transparency and greater communication of economic policies with the public, indicating that engaging with Kenyans will be a priority moving forward.

Kenya is actively negotiating a new lending program with the IMF to address the escalating debt crisis and financial strain compounded by reduced foreign aid. With significant loans and commitments from international entities, the focus on economic reform and transparency remains crucial as the government grapples with public opposition to further borrowing. Careful management of state-owned enterprises and tax reforms are essential for restoring investor confidence and stabilizing the economy.

Original Source: www.okayafrica.com