Kenya will seek a new agreement with the IMF following the end of its current program amid significant debt concerns. With approximately $80 billion in debt, Kenya spends two-thirds of its revenue on debt servicing, impacting health and education budgets. The IMF has halted its ninth review due to unmet financial targets, prompting the need for a revised, potentially more favorable tax policy.
Kenya is set to negotiate a new agreement with the International Monetary Fund (IMF), as announced on Monday by the IMF. The current borrowing program, which amounts to $3.6 billion and was agreed upon in 2021, will conclude in April, with a final disbursement of $606 million scheduled for October. This move comes amidst rising concerns over the nation’s significant debt, approximating $80 billion, which consumes two-thirds of the country’s annual revenue, hindering spending on essential services like health and education.
The government faces challenges in increasing tax revenues, which have been a point of contention, leading to widespread demonstrations last year against President William Ruto’s tax hike proposals. In response, the IMF confirmed it had received a formal request from Kenyan authorities to establish a new program and expressed intentions to engage with them further. Coinciding with this, the IMF and the Kenyan government have decided to halt the upcoming ninth review of the current lending program due to non-compliance with financial targets.
Economist Churchill Ogutu noted the implications of Kenya’s failure to meet the IMF’s stipulated tax increase requirements, suggesting that further funding may be jeopardized if compliance does not improve. He advised that a potential adjustment towards a more favorable tax policy could mitigate the risk of unrest, as experienced previously. The specifics of the new IMF program remain uncertain, leaving many in anticipation of the forthcoming negotiations.
In conclusion, Kenya’s intention to pursue a new agreement with the IMF highlights the urgent need to address its growing debt issues and the challenges related to tax revenue generation. The suspension of the ninth program review signifies the importance of meeting fiscal targets to secure future funding. Furthermore, adopting a more favorable tax environment may help prevent social unrest and facilitate smoother negotiations with the IMF moving forward.
Original Source: www.thenews.com.pk
