The Government of Kenya is seeking a new IMF funding program after opting not to complete the review of an existing facility worth Ksh103.4 billion. The current $3.6 billion program is set to expire on April 1, raising concerns about a budget-financing gap. Kenya has struggled to meet crucial fiscal benchmarks and faces public backlash over recent tax measures. The government also awaits a $1.5 billion loan from the UAE, with uncertainties regarding disbursement due to potential foreign-exchange risks.
The Government of Kenya has sought a new funding program from the International Monetary Fund (IMF) after opting not to pursue the final review of an existing agreement that could have released approximately Ksh103.4 billion ($800 million). This decision comes amidst concerns of facing a budget-financing gap as the current $3.6 billion (Ksh466.2 billion) program, initiated due to the effects of the Covid-19 pandemic, is set to expire on April 1.
The IMF confirmed that the ninth review under the current extended fund facility will not proceed, having reached an understanding with the Kenyan authorities. A formal request for a new program has been submitted, and engagements are anticipated to commence thereafter. Periodic fiscal assessments suggest that Kenya has not met several key performance benchmarks, including reducing the fiscal deficit and enhancing revenue generation measures.
Government attempts to raise revenue through new taxes during recent budgets have sparked significant public unrest, particularly amongst younger generations. Additionally, Kenya has recently undertaken strategies such as repurchasing some Eurobonds and issuing long-term securities to manage debts more effectively.
Moreover, Kenya awaits the disbursement of a $1.5 billion (Ksh194.25 billion) loan from the United Arab Emirates, originally intended to be distributed in two portions. However, concerns expressed by Treasury Cabinet Secretary John Mbadi regarding foreign-exchange risks and Kenya’s borrowing limits may result in delays. The government aims to lower the share of foreign loans to about 18% of the total debt, given reduced IMF funding prospects.
In summary, Kenya’s request for a new IMF funding program follows the decision to forgo a critical review of an existing facility, raising alarms about potential budget constraints. Fiscal experts remain skeptical, given the country’s inability to meet vital benchmarks under the current agreement. The ongoing fiscal strategy also includes managing existing debts through measures such as Eurobond repurchase. With uncertainties surrounding foreign loans, especially from the UAE, the government faces significant challenges in its financial management strategy moving forward.
Original Source: www.kenyans.co.ke
