Kenya to Pursue New Agreement with IMF Amidst Economic Challenges

Kenya plans to negotiate a new agreement with the IMF as its current program concludes. With $80 billion in debt, debt servicing is consuming much of its revenue, affecting spending on essential services. Past protests over tax increases have prompted the government to consider a favorable tax policy to avoid further unrest.

Kenya intends to establish a new agreement with the International Monetary Fund (IMF) as the current program approaches its conclusion. Despite being acknowledged as an economic beacon in East Africa, the nation faces approximately $80 billion in outstanding external and domestic debt. This debt burden consumes two-thirds of the national revenue, overshadowing expenditures in critical sectors such as health and education, with the government struggling to enhance tax collections.

Last year, public protests emerged in response to President William Ruto’s tax hike proposal. In a recent statement, the IMF confirmed it has formally received a request from Kenyan authorities for a new program, indicating ongoing discussions. Consequently, officials from the IMF and the Kenyan government have opted not to move forward with the ninth review of the existing $3.6 billion lending program, originally established in 2021.

This program is set to conclude in April, with a final disbursement of $606 million anticipated in October. The specifics of the forthcoming IMF program remain uncertain. Economist Churchill Ogutu from the financial consulting IC group remarked that the shelving of the ninth review reflects non-compliance with established targets. He also expressed concern that without adherence to tax increase stipulations, Kenya may struggle to secure further funding. Looking ahead, Ogutu suggested the possibility of the government implementing a more favorable tax policy environment to avert another wave of protests like those witnessed last year.

In summary, Kenya is actively seeking a new agreement with the IMF following the impending conclusion of its current program, amidst significant debt challenges. The decision to not proceed with the ninth review highlights concerns over compliance with financial commitments. Moving forward, adjustments in tax policy may be necessary for the Kenyan government to mitigate potential public dissent and secure necessary funding.

Original Source: www.thenews.com.pk