Kenya will abandon its current IMF program to negotiate a new lending deal amid rising debt-servicing costs. A formal request for a new program has been made, as existing arrangements face challenges due to protests and disputes over borrowing. The nation’s debt-to-GDP ratio has significantly exceeded sustainable levels, prompting a need for new financial strategies.
Kenya is set to initiate discussions with the International Monetary Fund (IMF) for a new lending program, marking the abandonment of the current fiscal plan amid rising debt-servicing costs influenced by prior borrowing practices. This shift is critical for the nation as it seeks sustained financial support to manage its debt repayments effectively, which have escalated due to substantial government expenditures in recent years.
Haimanot Teferra, the IMF’s mission chief, confirmed that the Kenyan authorities have formally requested a new program, indicating that the ninth review under the existing Extended Fund Facility (EFF) and Extended Credit Facility (ECF) will not move forward. These programs are poised to terminate next month and collectively encompass a financial commitment of $3.6 billion for Kenya.
Following the announcement, the Kenyan dollar bonds experienced a downturn, with significant declines observed in the 2032 and 2048 maturities, which fell over one cent. Such changes reflect market apprehensions regarding the fiscal disarray, particularly since the ninth review was anticipated to potentially release an additional $480 million in funds.
The current lending framework, initiated in April 2021, has faced challenges, including widespread protests against tax increases and disputes over new borrowings from the United Arab Emirates. Finance Minister John Mbadi indicated that there will be efforts to secure a financing program to sustain fiscal operations, while the government also aims to enhance domestic revenue channels to manage the increasing debt burden.
As of June last year, Kenya’s debt-to-GDP ratio reached 65.7%, surpassing the sustainable threshold of 55%. The country is joining several other African nations in securing financing to address maturing debts and ensuring funds for essential services, thereby improving its fiscal health amidst such financial pressures.
In summary, Kenya’s decision to pursue a new arrangement with the IMF underscores the urgency of addressing its increasing debt-stabilization challenges. The abandonment of the previous program reflects both the need for new financial strategies and the country’s struggle with elevated debt levels. Moving forward, efforts will focus not only on acquiring necessary funding but also on strengthening domestic revenue generation to enhance fiscal sustainability.
Original Source: www.straitstimes.com
