Kenya abandons the most recent review and looks for a new IMF arrangement

Kenya, which is struggling to get its economy back on track after a borrowing spree resulted in a spike in debt-servicing costs, will talk about a new credit program and stop the present one with the International Monetary Fund (IMF).

To keep up with debt obligations that have accrued as a result of significant government spending in recent years, the East African country requires ongoing financial assistance from the Fund.

“The IMF has received a formal request for a new program from the Kenyan authorities and will engage with them going forward,” said IMF mission leader Haimanot Teferra in a statement during a visit to Tokyo.

The parties “reached an understanding that the ninth review under the current Extended Fund Facility and Extended Credit Facility programs will not proceed,” according to the statement.

The combined ECF/EFF facility is valued at $3.6 billion and is scheduled to expire next month.

The 2048 maturities of Kenyan dollar bonds fell more than 1 cent each to bid at just over 80 cents as a result of the news. A few maturities had their lowest price in about half a year.

The IMF stated that by the end of last October, $3.12 billion had been authorized for payment under the existing financing program, suggesting that the ninth review might have opened the door to a final release of roughly $480 million.

Requests for clarity on the extent of the stakes under the ninth review were not answered by either IMF officials or their colleagues in the Kenyan government.

The Resilience and Sustainability Facility, which was authorized for Kenya in July 2023 and had released $180.4 million of the $541.3 million by the end of last October, was not mentioned in the IMF’s announcement.

Teferra stated that the Kenyan government had formally requested a new program from the IMF, although it was unclear if the program would be loan or non-lending.

Last month, John Mbadi, the finance minister, informed Reuters that the government will look for a funding package.

BEST-CASE OUTCOME, NEW DEAL

According to Charlie Robertson, head of macro-strategy at FIM Partners, “the market is a little disappointed as anyone would be,” and up to $800 million in funding across multiple IMF credit programs might no longer be available.

He did, however, say that investors were reassured by the possibility of a new IMF agreement, an unutilized $1.5 billion loan from the United Arab Emirates, and a $1.5 billion Eurobond that was issued last month.

Robertson stated that “a funded IMF deal would be the best-case outcome,” and that money from the cancelled review might ideally be used to support a new program.

In April 2021, the current ECF/EFF program got underway. However, a dispute over increased borrowing from the United Arab Emirates and violent anti-tax hike riots last year have complicated its execution.

To keep up with the burden of debt servicing and fund vital expenses like climate change adaptation, the government has been rushing to find new sources of funding, including initiatives to increase domestic revenue collection.

According to figures from the finance ministry, Kenya’s overall debt-to-GDP ratio was 65.7% as of June of last year, significantly higher than the 55% threshold that is seen to be sustainable.

In an effort to level out obligations and ring-fence important expenses like health care, it joined the rapidly expanding group of African countries that have recently gone to the market to borrow money to pay off maturing debts.

Ivory Coast and Angola are two such countries that have engaged in those so-called liability management initiatives.