Kenya has sought a new funding program from the IMF after deciding to forgo the review for an existing facility that could have provided $800 million. The current $3.6 billion program, set to end on April 1, has not met fiscal targets, exacerbating budget challenges. The government plans to lower foreign loan dependency while managing a projected fiscal gap.
Kenya has initiated a request for a new funding program from the International Monetary Fund (IMF) after choosing not to proceed with the final review of the existing facility, which would have released $800 million. The current four-year program, valued at $3.6 billion, is set to conclude on April 1, and its termination without the final disbursement poses a significant budget-financing gap for the nation.
The IMF confirmed in a statement that the Kenyan authorities and its staff have mutually agreed to forgo the ninth review under the current extended fund facility. The agency has acknowledged the formal request from Kenya for a new program, pledging to engage with the authorities in the future.
Under the existing agreement, Kenya fell short of key fiscal benchmarks, such as reducing its fiscal deficit and enhancing revenue collection. Previous attempts to implement new taxes sparked violent protests, resulting in numerous fatalities last year.
Recently, Kenya repurchased certain eurobonds and issued long-term securities, planning to allocate approximately $950 million to repay costly syndicated loans owed to the Trade and Development Bank. Additionally, the country anticipates receiving the full disbursement of a $1.5 billion loan from the United Arab Emirates, which was initially intended to be divided into two phases.
In past communications, Treasury Secretary John Mbadi expressed that the IMF had expressed concerns regarding the UAE loan, indicating it might increase foreign-exchange risks and exceed the country’s commercial-borrowing limit for the current fiscal year. For the budget year commencing in July, Kenya aims to reduce its dependency on foreign loans to roughly 18% of the total due to decreased IMF disbursements. This year, the country predicts a fiscal gap of approximately 4.9% of its gross domestic product, improving to 4.3% in the following year.
In summary, Kenya is seeking a new program from the IMF as it concludes its current $3.6 billion agreement without securing the final $800 million disbursement. The failure to meet fiscal benchmarks and address significant challenges has exacerbated the nation’s financial situation, leading to concerns about foreign exchange risks associated with new loans. The government aims to stabilize its finances in the upcoming fiscal year by reducing reliance on foreign loans, even as it faces projected fiscal gaps.
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