Kenya intends to negotiate a new agreement with the IMF as its current program concludes. The country is facing $80 billion in debt, with debt service consuming a large portion of annual revenue. Protests against tax hikes have complicated the government’s efforts to raise revenue. IMF officials have suspended the ninth review of the existing lending program due to unmet tax targets.
Kenya is preparing to enter into a new agreement with the International Monetary Fund (IMF) following the completion of its current program. The nation, recognized as an economic beacon in the East African region, is nonetheless contending with approximately $80 billion in both external and domestic debt. Notably, debt servicing consumes two-thirds of the country’s annual revenue, significantly eclipsing expenditures in critical sectors like health and education. However, the government has encountered challenges in increasing tax revenues, which led to public demonstrations last year against President William Ruto’s tax hike proposal.
The IMF has acknowledged receiving a formal request for a new program from Kenyan authorities and plans to continue discussions with them moving forward. Consequently, IMF officials and the Kenyan government have decided to defer the planned ninth review of their existing $3.6 billion lending program. This program, initiated in 2021, is set to conclude in April, with an outstanding final disbursement of $606 million anticipated in October.
The specifics of the forthcoming IMF program remain uncertain. Economist Churchill Ogutu from IC Group remarked, “It is not surprising that they are shelving the ninth review completely because of the non-adherence to the targets.” He further indicated that due to Nairobi’s failure to comply with the IMF’s stipulated tax increase requirements, the chances of obtaining funding under the new agreement could be slim. Ogutu forecasted that Kenyan authorities might need to establish a more accessible tax policy to prevent public unrest reminiscent of last year’s protests.
In conclusion, Kenya’s pursuit of a new agreement with the IMF comes amid significant economic challenges, particularly high debt servicing obligations and insufficient tax revenue. With demonstrations over tax policies still fresh in memory, the government’s capacity to engage effectively with the IMF will largely depend on its ability to comply with fiscal targets set by the organization. The forthcoming negotiations with the IMF will be crucial for Kenya’s economic stability and recovery.
Original Source: www.jacarandafm.com
