Kenya and IMF Begin Discussions for New Lending Programme

Kenya and the IMF are commencing talks for a new lending program, replacing the ninth review of the existing $3.6 billion loan. This change is prompted by soaring debt-servicing costs, exacerbated by previous political unrest and extensive borrowing. The government is seeking financial support to maintain economic stability amid high debt levels.

Kenya and the International Monetary Fund (IMF) have embarked on discussions to establish a new lending program, foregoing the ninth review of the current $3.6 billion loan agreement. This decision is crucial as Kenya seeks to maintain economic stability amidst increasing debt-servicing costs resulting from a decade of extensive borrowing.

Haimanot Teferra, the IMF’s mission chief, stated, “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 has also received a formal request from the Kenyan government for the new program.

The existing lending program, which commenced in April 2021, is scheduled to expire next month but has faced challenges due to violent anti-tax hike protests last year and issues related to borrowing from the United Arab Emirates. Finance Minister John Mbadi previously announced that the government would pursue a financing program to address its fiscal needs.

As of the end of October 2022, approximately $3.12 billion had been approved for disbursement under the current program, according to the IMF. To cope with rising expenditure and significant debt servicing, the Kenyan government is actively exploring new financing avenues and improving revenue collection.

Recent data from the finance ministry indicated that Kenya’s total debt-to-GDP ratio was 65.7% as of June of last year, exceeding the 55% threshold deemed sustainable. This underscores the urgency of securing additional resources to ensure fiscal stability and economic resilience.

In conclusion, as Kenya negotiates with the IMF for a new lending program, the focus remains on managing escalating debt and sustaining economic growth. The abandonment of the ninth review marks a pivotal moment in this relationship, reflecting the urgent need for Kenya to secure financial support while addressing its high debt-to-GDP ratio. Continuous efforts to enhance revenue collection are critical for the nation’s fiscal health moving forward.

Original Source: www.straitstimes.com