Kenya and the IMF have agreed to commence formal discussions on a new lending program, abandoning the ninth review of the current $3.6 billion loan due to Kenya’s rising debt servicing costs. The existing program, which began in April 2021, is expiring soon, prompting the need for sustained financial support amid economic challenges.
Kenya and the International Monetary Fund (IMF) have initiated discussions for a new lending program after deciding to forgo the ninth review of the existing $3.6 billion loan. This decision arises as Kenya needs sustained support to stabilize its economy, which has recently seen an increase in debt servicing costs following extensive borrowing over the past decade.
Haimanot Teferra, the IMF mission chief, confirmed that an agreement was reached during a visit to Nairobi, stating, “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.” Following this, the IMF has received a formal request from the Kenyan government seeking a new program.
The existing lending program, initiated in April 2021, is scheduled to end next month. Implementation faced challenges due to significant protests against tax hikes and disputes regarding new borrowing arrangements with the United Arab Emirates. Treasury Cabinet Secretary John Mbadi indicated last month that the government would actively pursue a financing program to address these issues.
As of the end of last October, the IMF had approved $3.12 billion for disbursement from the existing program. Furthermore, the Kenyan government is exploring new financing sources and enhancing revenue collection to address rising expenditures and high debt servicing costs. Recent data show Kenya’s total debt-to-GDP ratio stood at 65.7% as of June of the previous year, exceeding the sustainable threshold of 55%.
In summary, Kenya’s negotiations with the IMF regarding a new lending program are critical as the country faces rising economic pressures from debt servicing costs and a high debt-to-GDP ratio. The decision to forgo the ninth review of the existing loan reflects the urgency to forge a suitable financial path forward. Ongoing efforts to improve revenue collection and secure diverse financing sources will be essential to stabilize Kenya’s economy.
Original Source: ntvkenya.co.ke
