Kenya Requests New IMF Program Amid Funding Challenges

Kenya has sought a new IMF funding program after failing to secure a final review for $800 million in aid. The current $3.6 billion program ends on April 1, exposing a budget gap. Fiscal targets have been unmet, prompting financial adjustments, including plans to reduce foreign loans and manage debt more effectively.

Kenya has requested a new funding agreement with the International Monetary Fund (IMF) after forgoing a final review that could have unlocked $800 million under the current $3.6 billion program. This program, established post-Covid-19, is set to expire on April 1, leaving a significant budget-financing gap if the disbursement does not materialize. The IMF confirmed the mutual decision not to proceed with the ninth review of the existing program, indicating engagement on a new program moving forward.

The existing program failed to meet key benchmarks, including reducing the fiscal deficit and enhancing revenue measures. Attempts to implement new taxes in previous budgets sparked violent protests last year, resulting in numerous fatalities. Recently, Kenya has repurchased some eurobonds and issued longer-dated securities, planning to allocate approximately $950 million to pay off costly loans to the Trade and Development Bank.

Furthermore, Kenya anticipates receiving the full $1.5 billion loan from the United Arab Emirates, which was originally designated to be disbursed in two parts. Treasury Secretary John Mbadi previously noted the IMF’s concerns regarding the UAE loan exposing Kenya to foreign-exchange risks and exceeding its borrowing ceiling.

For the upcoming budget year starting in July, Kenya intends to reduce its reliance on foreign loans to 18% of the total due to lower anticipated IMF receipts. Kenya projects a fiscal gap of 4.9% of its gross domestic product (GDP) for this year, narrowing to 4.3% in the following year.

In summary, Kenya’s request for a new IMF program follows the decision to forgo a final review that would have secured $800 million under the current agreement. Key fiscal benchmarks were not met, leading to significant financial challenges. As Kenya endeavors to manage its debts and reduce its fiscal gap, the situation underscores the intersection of local governance, international funding, and economic stability.

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