Kenya seeks new IMF deal after abandoning latest review

Kenya seeks new IMF deal after abandoning latest review Kenya has officially requested a new IMF financing program after abandoning the ninth review of its existing $3.6 billion Extended Credit Facility (ECF/EFF), which expires in April 2025. This decision forfeits a potential final disbursement of $480 million from the current program. However, some analysts estimate that up to $800 million in combined IMF funds could now be unavailable. Kenya has accumulated too much debt. Debt pressures are enormous. The debt-to-GDP ratio reached 65.7% of GDP in June 2024, exceeding the 55% sustainability threshold. Debt servicing costs have risen sharply due to high borrowing over the past decade. The current program has faced setbacks, including violent protests over taxes in 2023 and disputes over UAE borrowing. The market impact was not long in coming. Kenyan dollar bonds fell sharply, with maturities until 2048 falling to approximately 80 cents on the dollar. IMF Mission Chief Haimanot Teferra confirmed talks about a new program but did not specify its structure (lending vs. non-lending). Kenyan Finance Minister John Mbadi stated that the government is pursuing a financing program. Analysts note that a new IMF agreement could include funds from the suspended review, which represents a possible best-case scenario. Other financing options are being explored, including the recent issuance of a €1 billion Eurobond. This could be a shift in policy and suggests that the Kenyan government is recalibrating its approach to IMF engagement at a time of mounting fiscal strains and rising external debt. The IMF mission team, which met with senior economic officials from the country, concluded the talks without disbursing the next instalment of KSh 103.6 billion. The Bretton Woods Institution (Bretton Woods Institutions are the International Monetary Fund [IMF] and the World Bank, established in 1944 at the Bretton Woods Conference in New Hampshire, USA. They were created in response to the economic crises of the 1930s and were intended to establish a stable international economic order after World War II) has acknowledged Kenya's request for a new program. However, it remains unclear whether the government is seeking more flexible terms, a longer repayment period, or a more comprehensive rebalancing of its fiscal commitments. Kenya continues to require financial support from the Fund to meet the debt repayment that has accumulated as a result of high government spending in recent years. Here's an overview: IMF and Kenya's Debt Situation! Outstanding Purchases and Loans: As of December 31, 2024, Kenya had outstanding purchases and loans totaling $2.886 billion in Special Drawing Rights (SDRs). Ongoing Lending Program: As of the end of October 2024, the IMF had approved disbursements totaling $3.12 billion under the ongoing lending program. Future Debt Needs: Kenya is expected to need approximately $26 billion over the next decade to service its debt, including a significant $1 billion bond maturing in 2028. "The market, like everyone else, is a bit disappointed," said Charlie Robertson, head of macro strategy at FIM Partners. He added that up to $800 million in financing from various IMF lending programs may no longer be available. However, he said the prospect of a new IMF agreement, an unused $1.5 billion loan from the United Arab Emirates, and a $1.5 billion eurobond issued last month were reassuring investors. "A funded IMF agreement would be the best outcome," Robertson said.

@Reuters Daily Briefing