Kenya’s Pursuit of a New IMF Agreement Amid Economic Challenges

Kenya will seek a new agreement with the IMF as its current program concludes amid an $80 billion debt challenge. Debt servicing consumes a large portion of annual revenue, leading to difficulties in tax collection and prior public protests. The IMF has confirmed the engagement after shelving the planned review of the current lending program.

NAIROBI: Kenya intends to establish a new agreement with the International Monetary Fund (IMF), as noted in the IMF’s statement on a recent visit to the nation. This comes as the current financial program nears its conclusion. Although Kenya is perceived as an economic bright spot in the challenging East African context, it is managing approximately $80 billion in external and domestic debt, with debt servicing consuming two-thirds of annual revenue, significantly overshadowing health and education expenditures.

The government faces challenges in tax collection, compounded by last year’s protests against President William Ruto’s tax hike proposals. In response to a formal request for a new program from the Kenyan authorities, the IMF confirmed its engagement with them moving forward. The organization also stated that it has agreed not to proceed with the ninth review of the current $3.6 billion lending program, initially signed in 2021 and scheduled to conclude in April with a final $606 million disbursement anticipated in October.

The specifics of the new IMF program remain uncertain. According to Churchill Ogutu, an economist at the IC group, the decision to forgo the ninth review is unsurprising due to non-compliance with necessary targets. He emphasized that Kenya’s failure to meet the IMF’s tax increase expectations diminishes the likelihood of securing funding. Ogutu also suggested that Kenya might consider a more favorable tax policy environment to avoid similar protests experienced in the previous year.

In summary, Kenya’s pursuit of a new IMF agreement arises from economic pressures, including a significant debt burden and challenges in tax revenue generation. The current program is being concluded without a planned review due to unmet conditions. The future program is not defined yet, but may focus on establishing a more favorable tax system to prevent public unrest. Engagement with the IMF marks a crucial step in addressing Kenya’s economic hurdles.

Original Source: www.thenews.com.pk