Kenya has requested a new IMF program after halting a review of its existing agreement, which would have provided $800 million. The current program ends soon, with Kenya failing to meet fiscal targets. The nation plans to reduce its foreign loans and anticipates a fiscal deficit of approximately 4.9% of GDP this year.
Kenya has formally requested a new funding program from the International Monetary Fund (IMF) after deciding not to conduct a final review of its existing program aimed at securing $800 million. The current four-year, $3.6 billion program is set to conclude on April 1, 2023, and its expiry without final disbursement is expected to create a budget-financing shortfall for the nation.
The IMF confirmed that there will be no further review under the current facility and acknowledged receipt of Kenya’s request for a new program. This decision follows an understanding between Kenyan authorities and IMF staff, as stated in a communication from the IMF following a staff visit.
Kenya’s current program has seen it fail to meet crucial benchmarks, such as reducing its fiscal deficit and enhancing revenue collection. Previous efforts to broaden the tax base provoked severe protests last year, resulting in numerous fatalities.
Recently, Kenya repurchased some of its eurobonds and issued longer-dated securities, planning to use approximately $950 million to eliminate costly loans owed to the Trade and Development Bank. Furthermore, the nation anticipates receiving a full $1.5 billion loan from the United Arab Emirates, which was initially planned to be disbursed in two phases.
Concerns were raised by Treasury Secretary John Mbadi regarding the UAE loan, as the IMF indicated it could subject Kenya to foreign exchange risks, given that it exceeded the government’s borrowing limit for the fiscal year. Starting in July, Kenya aims to reduce its reliance on foreign loans to about 18% of its total borrowing due to dwindling IMF receipts. The government forecasts a fiscal deficit of approximately 4.9% of GDP for the current year, decreasing to 4.3% in the following year.
In summary, Kenya is poised to enter a new funding program with the IMF following the abandonment of its current agreement, which did not facilitate key financial benchmarks. This situation reflects ongoing fiscal challenges and responses to public unrest over taxation policy. As the nation adapts its budgetary approaches, it also faces risks associated with significant foreign loans and a projected fiscal deficit. Therefore, Kenya’s financial management and upcoming strategies will be critical in stabilizing its economy.
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