Kenya Requests New IMF Program Amid Financial Challenges

Kenya has requested a new IMF program after opting not to complete the review of its existing $3.6 billion program, which is set to expire soon. The country has struggled to meet fiscal goals, leading to protests over tax measures. Anticipated fiscal gaps and concerns over foreign loans further complicate the economic landscape as Kenya seeks fresh funding support from the IMF.

Kenya has formally requested a new funding program from the International Monetary Fund (IMF) after deciding not to pursue a final review of its existing facility that would have released $800 million. The current $3.6 billion program, established post-Covid-19 pandemic, is set to conclude on April 1, potentially creating a budget-financing gap for the country.

The IMF, in a statement following a staff visit, noted an agreement with Kenyan authorities to halt the ninth review under the existing extended fund facility and extended credit facility. The Fund has received a formal request for a new program, and engagement will proceed with Kenyan officials moving forward.

Kenya’s current program has been marked by its inability to meet critical benchmarks, including reducing its fiscal deficit and enhancing revenue. Efforts to implement new taxation measures in two previous budgets ignited violent protests last year, resulting in significant loss of life.

Recently, Kenya repurchased some eurobonds and issued longer-maturity securities with intentions to utilize approximately $950 million to retire costly syndicated loans from the Trade and Development Bank. Additionally, it anticipates receiving a full disbursement of a $1.5 billion loan from the United Arab Emirates, which was originally set to be split into two tranches.

Treasury Secretary John Mbadi remarked last year that the IMF had expressed concerns that the UAE loan might leave Kenya vulnerable to foreign-exchange risks, particularly as the amount exceeds the permissible limit for commercial borrowing in the current fiscal year. For the budget year commencing in July, Kenya intends to reduce foreign loans to roughly 18% of its total borrowing, projecting a fiscal gap of 4.9% of GDP this year and 4.3% next year.

Kenya’s request for a new IMF funding program highlights the challenges it faces after failing to meet crucial economic benchmarks under its existing aid framework. With a significant fiscal gap anticipated and recent attempts to manage debt through eurobond repurchases, the country is navigating complex fiscal dynamics while preparing for its upcoming budget year.

Original Source: www.livemint.com