Kenya seeks IMF loan condition waivers

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  • The board of directors of the International Monetary Fund (IMF) will meet on July 18 to review the country’s request for an additional emergency loan in the amount of US$244 million equivalent to Sh28 billion
  • Kenya’s borrowing reached Sh8.4 trillion on July 8, representing 70 per cent of GDP, up from 48.6 per cent in 2015
  • Despite improved tax collections by the Kenya Revenue Authority, Kenya is facing high expenses of refinancing dollar loans as it looks to tap global markets to plug the country’s budget deficit

Even though Kenya has fallen behind on crucial commitments such as the creation of a central payroll, the board of directors of the International Monetary Fund (IMF) will meet on July 18 to review the country’s request for an additional emergency loan in the amount of US$244 million equivalent to Sh28 billion.

The IMF has disclosed that Kenya seeks loan condition waivers on the programme. This indicates that the country has been unsuccessful in meeting certain conditions that were established in April of the previous year when the fund approved a loan to Kenya in the amount of US$2.34 billion (about Sh257 billion).

In order to access the loan in stages, it was expected of Kenya that it would, among other things, restructure state-owned businesses, carry out a specific audit on Covid-19 expenditures, and impose wealth declaration requirements for public employees.

IMF stated in its update in December that the decision to implement a standard payroll system across MDAs (ministries, departments, and agencies) and counties were accomplished through the articulation in late October of a mutually agreed-upon path to execute the payroll system by June 2022.

In addition, the International Monetary Fund urged that the government, which is currently tight on funds, make public the information about the ownership of all enterprises that are awarded public tenders as a means of ending the rampant theft of money that belongs to the people.

Kenya has accomplished some of the IMF’s goals, and as a result, the country’s authorities and the IMF’s staff have come to an agreement on how to proceed with the issuance of the funds. This agreement is currently awaiting the board’s approval before it can be implemented.

During the time that former President Mwai Kibaki was in office, Kenya avoided taking out this kind of credit. Instead, the majority of the assistance that the country received from organisations such as the IMF and the World Bank came in the form of project funding.

The International Monetary Fund (IMF) stated that Kenya was on the right track to reaching its fiscal objective as part of the plan and that the country’s robust tax performance this year was helping its resilience in the face of disturbances on global shocks.

The fund stated that the completion of the study would enable Kenya to access around US$239 million at the current currency rates by the middle of July, as was predicted in April.

Despite improved tax collections by the Kenya Revenue Authority, Kenya is facing high expenses of refinancing dollar loans as it looks to tap global markets to plug the country’s budget deficits. This is because Kenya is trying to fill the country’s budget shortfalls (KRA).

During the fiscal year that concluded in June 2022, the KRA was successful in collecting Sh2.031 trillion, surpassing its goal revenue collection amount by Sh148.9 billion. In spite of the tax collection, Kenya had had a difficult time securing loans denominated in dollars when markets sought greater yields, which led to the cancellation of a Eurobond worth one billion dollars.

Ukur Yatani Kenya’s Finance Cabinet Secretary presents the Government Budget for the 2021/22 fiscal year inside the Parliament buildings in Nairobi [Photo/AFP]
Ukur Yatani, Kenya’s Treasury Cabinet Secretary, stated that as a result of Russia’s invasion of Ukraine, Eurobonds have become highly expensive, which has caused Kenya to re-evaluate its decision to issue a bond.

The nation will now turn back to the syndicated loans that it utilised up until the year 2019, when Henry Rotich, the former Treasury Cabinet Secretary, was in charge. Prior to that, the government shifted its policy of borrowing away from commercial banks in order to lower the cost of debt and lengthen maturity in order to ease the burden of making payments.

Due to the fact that Kenya is now in violation of the terms set forth by the IMF, the country has been obliged to give up on its plan to alter the composition of its debt by switching from short-term, pricey commercial loans to longer-term, sovereign bonds.

The nation had reached a deal with the International Monetary Fund (IMF) to stick to concessional funding in order to decrease its debt vulnerabilities. As part of this deal, the nation promised to forego syndicated loans in favour of Eurobonds and multilateral loans.

After accumulating a large amount of commercial debt that is now difficult and expensive to repay and using more than 63 per cent of its total tax revenue, Kenya is attempting to rebalance its debt portfolio.

In 2020 Treasury Cabinet Secretary Ukur Yatani assured Kenya Parliament that commercial loans would only be made in the form of Eurobonds, which would be used to roll over principal payments when obligations matured.

Kenya’s commercial debt is primarily in Eurobonds, with a portfolio of six great totalling US$7.1 billion (Sh829.9 billion) and traded on the London stock and Irish exchanges.

Eurobonds have climbed substantially in recent weeks, trading above 10 per cent in the secondary market, indicating the pricing the country will receive if it goes to the global market.

Kenya’s borrowing reached Sh8.4 trillion on July 8, representing 70 per cent of GDP, up from 48.6 per cent in 2015.

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Maingi Gichuku is passionate about helping African businesses grow by offering technology solutions. With a BSC in Zoology and biochemistry, Gichuku yearns for an Africa that can find solutions to its challenges. My drive is to see an economically dynamic Africa and embrace its populations by creating opportunities cutting across the social and economic strata.

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