Kenya Pursues New IMF Loan Amid Economic Pressures
Kenya has opted to negotiate a new lending agreement with the IMF, abandoning its existing programme to tackle rising debt repayment challenges. The IMF confirmed the discontinuation of the ninth review of current financial support. This decision has affected the bond market and highlights the pressing need for alternative revenue solutions.
Kenya is set to negotiate a new lending agreement with the International Monetary Fund (IMF) as it terminates its current programme amidst escalating economic challenges related to debt repayments. Heavy reliance on IMF assistance has become necessary due to increasing debt levels from years of government borrowing.
The IMF’s mission chief, Haimanot Teferra, indicated that Kenyan authorities have formally requested a new programme, and discussions are ongoing. Following a visit to Nairobi, the IMF announced the decision to halt the ninth review of the existing Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes.
Currently, the $3.6 billion EFF/ECF arrangement, which concludes next month, has disbursed $3.12 billion, with a potential for an additional $480 million had the ninth review progressed. However, specific implications of discontinuing the review were not disclosed by either the IMF or Kenyan officials.
Subsequent to this announcement, Kenyan dollar bonds experienced a decline, particularly the 2032 and 2048 maturities, which dropped over 1 cent, trading at 90.136 and 80.173 cents on the dollar, respectively. Certain maturities have reached their lowest values in six months.
The IMF’s communication made no mention of Kenya’s Resilience and Sustainability Facility, approved in July 2023, from which $180.4 million out of the allocated $541.3 million has been disbursed by October of the previous year. While the specifics of the new programme remain uncertain, Kenya grapples with economic repercussions from anti-tax protests and borrowing controversies, including a disputed loan from the United Arab Emirates.
To address its debt servicing needs and fund essential areas such as climate adaptation, the Kenyan government is seeking alternative revenue sources, notably through enhanced domestic revenue. With a debt-to-GDP ratio of 65.7% as of June 2023, surpassing the sustainable threshold of 55%, Kenya has joined other African nations like Ivory Coast and Angola in issuing bonds aimed at refinancing maturing debts and maintaining essential public services such as healthcare.
In summary, Kenya’s decision to pursue a new IMF programme reflects the urgent need to address its rising debt challenges, particularly as it surpasses sustainable thresholds. While the future details and structure of the agreement remain to be seen, the government continues to explore alternative funding avenues amidst economic pressures. These developments illustrate the broader struggles faced by Kenya and similar African nations in managing public finances and sustaining economic health.
Original Source: newscentral.africa
