Kenya has turned to the International Monetary Fund (IMF) for a new funding program as it struggles to close its widening budget gap.
The East African nation has reportedly opted to forego the final review of an existing four-year facility that would have unlocked $800 million.
The decision signals concerns over the country’s fiscal position as it approaches the April 1 expiration of the $3.6 billion extended credit facility secured in response to the economic shocks of the COVID-19 pandemic. With the program set to conclude without the final disbursement, Kenya now faces an immediate shortfall in budget financing.
An IMF statement confirmed that discussions with Kenyan authorities had resulted in an agreement not to proceed with the ninth and final review under the current program.
The lender also acknowledged receiving a formal request from Kenya to establish a new financial arrangement, hinting at continued engagement to determine the structure of the next support package.
Struggles to Meet Economic Reforms
Kenya’s failure to meet critical fiscal benchmarks under the expiring program has complicated its access to external financing.
The government fell short in efforts to narrow the fiscal deficit and enhance revenue collection with tax hikes in previous budgets sparking nationwide protests that escalated into violent demonstrations last year.
Despite IMF-backed economic reforms, revenue mobilization efforts have failed to keep pace with rising expenditures.
The government’s attempt to broaden the tax base and introduce new levies faced widespread public backlash, forcing authorities to rethink their approach.
Debt Strategy and External Financing
In an effort to ease mounting debt pressure, Kenya recently repurchased part of its eurobonds while securing $950 million to retire high-cost syndicated loans from the Trade and Development Bank.
Also, the country is set to receive a $1.5 billion loan from the United Arab Emirates (UAE), initially planned in tranches but now expected in full.
However, the IMF had previously raised concerns about Kenya’s reliance on such external financing and warned that excessive foreign-currency borrowing could increase exposure to exchange rate volatility.
Treasury officials have since outlined plans to reduce foreign loans to 18% of total borrowing in the next fiscal year, reflecting a shift toward more sustainable debt management.
Economic Outlook and Future IMF Engagement
Kenya’s fiscal deficit remains a pressing issue, projected at 4.9% of GDP this year and expected to decline to 4.3% in the next budget cycle.
The government aims to balance spending cuts with new revenue measures, but the reliance on IMF assistance underscores the challenges of stabilizing public finances.
As Kenya moves forward with negotiations for a fresh IMF deal, the outcome will be crucial in shaping investor confidence and determining the country’s access to global credit markets.
Analysts warn that while continued IMF support could provide immediate relief, deeper structural reforms will be necessary to restore fiscal stability in the long run.
