Kenya is abandoning its current IMF programme to negotiate a new lending agreement due to economic challenges from rising debt. The IMF has received an official request to commence discussions on the new programme. Kenyan dollar bonds experienced a decline following the announcement. The nation’s debt-to-GDP ratio is notably high, prompting the government to seek new funding strategies.
Kenya is set to pursue a new lending agreement with the International Monetary Fund (IMF) while terminating its existing programme, amid rising economic challenges stemming from escalating debt repayment costs. The nation has relied heavily on IMF assistance to manage its growing debt, which has accumulated due to extensive government borrowing over the years.
Haimanot Teferra, the IMF’s mission chief, indicated that Kenyan authorities have submitted an official request for a new programme, and negotiations will continue. Following discussions in Nairobi, the IMF confirmed the cessation of the ninth review concerning the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes.
The ongoing $3.6 billion EFF/ECF arrangement, set to conclude next month, has disbursed $3.12 billion thus far, with another $480 million poised to be released had the ninth review been completed. However, neither the IMF nor Kenyan officials specified the repercussions of discontinuing the review.
This announcement resulted in a decline in Kenyan dollar bonds, with 2032 and 2048 maturities suffering losses exceeding 1 cent, trading at 90.136 and 80.173 cents on the dollar, respectively. Some bond maturities reached their lowest values in six months.
Moreover, the IMF’s statement did not address Kenya’s Resilience and Sustainability Facility, approved in July 2023, under which $180.4 million of a total $541.3 million had been disbursed by October of the previous year.
Although specific details regarding the new programme remain ambiguous, including whether it will consist of direct lending or advisory assistance, Kenya continues to face repercussions from recent anti-tax protests and disputes regarding borrowing, notably concerning a contentious loan from the United Arab Emirates.
In efforts to manage its financial obligations, the government aims to enhance domestic revenue collection and secure alternative funding sources contributing to vital expenditure areas, including climate adaptation. With a debt-to-GDP ratio of 65.7% as of June 2023—exceeding the advised sustainable limit of 55%—Kenya has joined other African nations, such as Ivory Coast and Angola, in issuing bonds to refinance maturing debts and protect essential public services like healthcare.
In summary, Kenya is transitioning towards a new lending agreement with the IMF, making a strategic decision to abandon its existing programme due to increasing economic challenges related to debt. The planned discussions between the IMF and Kenyan authorities aim to address these challenges as the country navigates its financial landscape amid high debt levels and ongoing economic pressures, while also seeking to secure alternative funding and enhance domestic revenue collection.
Original Source: newscentral.africa
