Kenya is negotiating a new lending agreement with the IMF, abandoning the existing programme to address rising debt repayment challenges. The $3.6 billion EFF/ECF arrangement is set to conclude, leading to a downturn in Kenyan dollar bonds. The country’s debt-to-GDP ratio now surpasses 65%, prompting discussions for alternative funding sources amid ongoing economic struggles.
Kenya is set to negotiate a new lending agreement with the International Monetary Fund (IMF), thereby discontinuing its current programme due to escalating economic challenges and high debt repayment costs. The nation has relied heavily on IMF assistance to manage its increasing debt, which has escalated due to years of significant government borrowing.
Haimanot Teferra, the IMF’s mission chief, confirmed that Kenyan authorities have made an official request for a new programme, with discussions on this matter to proceed. Following a recent visit to Nairobi, the IMF stated that both parties have agreed to end the ninth review of the existing Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes.
The ongoing $3.6 billion arrangement under the EFF/ECF, due to conclude next month, has seen disbursal of $3.12 billion thus far, with another $480 million pending had the ninth review been conducted. However, the implications of discontinuing this review were not clarified by either the IMF or Kenyan officials.
This announcement led to a decline in Kenyan dollar bonds, with bonds maturing in 2032 and 2048 losing over 1 cent each, trading at 90.136 and 80.173 cents on the dollar, respectively; some maturities even reached their lowest levels in six months. Notably, the IMF’s statement did not address Kenya’s Resilience and Sustainability Facility, which received approval in July 2023. As of October last year, $180.4 million out of the $541.3 million total for this scheme had been disbursed.
The specifics of the upcoming programme remain uncertain, particularly whether it will focus on direct lending or advisory support. Kenya is facing economic repercussions from recent anti-tax protests and disputes regarding borrowing, which include a contentious loan from the United Arab Emirates. The government is also exploring alternative funding strategies and enhancing domestic revenue collection to fulfill its debt responsibilities while financing critical sectors such as climate adaptation.
As of June 2023, Kenya’s debt-to-GDP ratio stood at 65.7%, surpassing the recommended sustainable threshold of 55%. In response, Kenya has joined other African countries, such as Ivory Coast and Angola, in issuing bonds to refinance maturing debts and protect vital public expenditure areas such as healthcare.
In summary, Kenya’s decision to abandon its current IMF programme for a new agreement reflects the ongoing economic pressures exacerbated by significant debt repayment challenges. As the nation navigates these issues, including the impact of public protests and a rising debt-to-GDP ratio, efforts to secure alternative funding sources and enhance revenue collections are critical for meeting its financial obligations. The specifics of the forthcoming IMF programme remain to be defined as discussions continue.
Original Source: newscentral.africa
