Kenya Seeks New IMF Funding After Abandoning Previous Deal

Kenya has opted not to proceed with a final review of its existing IMF facility, worth approximately Ksh 103.4 billion, and is now seeking a new funding program from the IMF. This comes as the current four-year program is set to expire on April 1, potentially resulting in a budget-financing gap. The IMF has acknowledged the request and will engage with Kenyan authorities, while fiscal experts caution about past failures to meet key economic benchmarks.

The Government of Kenya has sought a new funding program from the International Monetary Fund (IMF) after opting not to proceed with the final review of an existing facility that could have provided approximately Ksh 103.4 billion ($800 million). This decision comes amid concerns about achieving economic benchmarks under the current IMF program, which concludes on April 1.

The existing four-year program, valued at $3.6 billion (Ksh 466.2 billion), was initiated in response to the economic challenges posed by the Covid-19 pandemic. The lack of final disbursement from this program may create a significant budget-financing gap for Kenya unless the new funding request is approved promptly.

Following a recent staff visit, the IMF confirmed, “The Kenyan authorities and IMF staff have reached an understanding that the ninth review under the current extended fund facility and extended credit facility programs will not proceed.” The IMF further stated, “The IMF has received a formal request for a new program from the Kenyan authorities and will engage with them going forward.”

However, fiscal experts are scrutinizing Kenya’s return to the IMF, especially after the government previously failed to meet critical targets, including reducing its fiscal deficit and improving revenue collection. This economic situation has also prompted protests, particularly from younger citizens opposing increased taxes proposed in prior budgets.

In a related financial maneuver, last month, Kenya repurchased some of its Eurobonds, issuing longer-dated securities instead, and plans to use the resultant funds to settle costly syndicated loans owed to the Trade and Development Bank. The nation is also set to receive a $1.5 billion loan from the United Arab Emirates, although this funding may be staggered due to Treasury CS John Mbadi’s caution regarding foreign-exchange risks and Kenya’s borrowing limits for the fiscal year.

In conclusion, Kenya’s decision to abandon its existing IMF facility and seek new funding highlights the critical economic challenges it faces. The government’s previous failures to meet set benchmarks raise concerns among fiscal experts, particularly regarding its fiscal deficit and revenue generation. The potential for budget-financing gaps looms as the IMF’s support remains uncertain, underscoring the need for effective economic measures moving forward.

Original Source: www.kenyans.co.ke