Kenya seeks a new IMF agreement amid escalating debt, which consumes two-thirds of annual revenue. Protests over tax increases have complicating factors for government revenue collection. The IMF has received a formal request from Kenya and will engage in discussions, ultimately shelving the current program’s ninth review due to non-compliance with targets.
Kenya has announced its intention to pursue a new agreement with the International Monetary Fund (IMF) following the conclusion of its current program. Although Kenya is recognized as an economic leader in the East African region, it is facing significant challenges, including approximately $80 billion in external and domestic debt. Currently, debt servicing accounts for two-thirds of the nation’s annual revenue, significantly surpassing allocations for health and education, with tax revenue collection proving difficult for the government.
In response to these economic pressures, protests erupted last year due to a proposed tax increase by President William Ruto. The IMF confirmed receiving a formal request from Kenyan authorities for a new program and intends to engage constructively moving forward. Notably, IMF officials have decided to forgo the ninth review of the existing $3.6 billion lending program, originally established in 2021, which is set to conclude this April.
The future of the new IMF program remains uncertain, as the decision to shelve the ninth review reflects Kenya’s struggles to adhere to the preset targets. Economist Churchill Ogutu remarked on the likelihood of Kenya withholding tax increases due to previous shortfalls. He suggested that adopting a more favorable tax policy could help mitigate protests similar to those witnessed previously.
Kenyan officials are now tasked with developing strategies to foster a conducive fiscal environment, balancing the urgent need for revenue against public discontent over tax policies.
In conclusion, Kenya’s effort to secure a new IMF agreement underscores the complexities of its current economic challenges. With rising debt levels and public unrest regarding tax increases, the Kenyan government faces difficult decisions ahead. The IMF’s decision to eliminate the scheduled review of the existing lending program reflects these challenges, prompting the need for a more favorable tax environment to ensure stability and growth.
Original Source: www.jacarandafm.com
