Kenya is in talks with the IMF for a new lending program as debt-servicing costs rise and foreign aid declines. Finance Minister John Mbadi confirmed this following a recent loan boost from the IMF. Challenges exist despite World Bank funding pledges, and public resistance to new debt is growing amid past protests. A focus on policy reforms is expected in the next IMF agreement.
Kenya is currently in discussions with the International Monetary Fund (IMF) regarding a new lending program, as confirmed by Finance Minister John Mbadi. This negotiation arrives amidst an increase in debt-servicing costs, financial pressures, and reduced foreign aid affecting the country’s budget. The existing lending arrangement is set to expire in April 2024, prompting the need for a new agreement.
In January 2024, Kenya secured a $941 million loan from the IMF, raising its commitments under the Extended Fund Facility and Extended Credit Facility to over $4.4 billion. Nevertheless, the country is still facing significant financial strain and has had to repay its $2 billion Eurobond, which was partially refinanced with a $1.5 billion Eurobond earlier this year. Additionally, the World Bank has committed $12 billion in funding for Kenya from 2024 to 2026, highlighting persistent fiscal challenges.
Mbadi articulated a desire for actionable indicators regarding the new program before the current one concludes in April, mentioning additional considerations such as a $1.5 billion commercial loan from the UAE and the possible issuance of another Eurobond to address funding gaps. Increased domestic fiscal pressure is also a concern due to the U.S. administration’s freezing of foreign aid, including USAID, compelling Kenya to reassess its budget and domestic resource allocation.
Economist Amboko H. Julians anticipates that the forthcoming IMF program will significantly concentrate on policy adjustments rather than direct financial aid. He indicated that a Policy Support Instrument (PSI) might be implemented, emphasizing necessary reforms related to state-owned enterprises and domestic revenue mobilization through tax adjustments. Such initiatives are expected to bolster investor confidence, enhancing Kenya’s access to international financial markets.
Public sentiment in Kenya reflects growing opposition to additional government debt, often reinforced by the aftermath of intensifying protests against income tax hikes last year. Despite public apprehension, President William Ruto’s administration continues with ambitious development projects, such as substantial funding for sewerage systems and market development in Mandera County. In response to public discontent, Minister Mbadi has pledged to enhance transparency and engage with citizens regarding economic policies.
Kenya is actively engaging in negotiations with the IMF for a new lending program amidst financial pressures and rising debt costs. The country’s recent loans and World Bank commitments have not alleviated its fiscal challenges. Public opposition towards government borrowing is significant, prompting calls for transparency from officials. Changes in policy and budget reallocation are essential as Kenya continues to navigate its precarious economic landscape.
Original Source: www.okayafrica.com
