Kenya and IMF to draw up new lending deal

Nairobi — Kenya and the International Monetary Fund (IMF) will discuss a new lending programme and abandon the current one, as the country struggles to get its economy back on track after a borrowing spree led to a surge in debt-servicing costs.

The East African nation needs continued financial support from the IMF to keep up with debt repayments that have accumulated as a result of heavy government spending in recent years.

“The IMF has received a formal request for a new programme from the Kenyan authorities and will engage with them going forward,” Haimanot Teferra, the IMF mission chief, said in a statement issued at the end of a visit to Nairobi.

The statement said the two sides had “reached an understanding that the ninth review under the current extended fund facility [EFF] and extended credit facility [ECF] programmes will not proceed”.

The combined ECF-EFF facility, which is set to expire next month, is worth a total of $3.6bn.

The news sent Kenyan dollar bonds lower, with the 2048 maturities down more than 1 cent each to bid at just more than 80c. Some maturities traded at their lowest in about six months.

Under the current lending programme, a total of $3.12bn had been approved for disbursement by the end of last October, the IMF said, implying the ninth review could have unlocked a final disbursement of about $480m.

Neither IMF officials, nor their Kenyan government counterparts, responded to requests for clarification on how much was at stake under the ninth review.

The IMF’s statement did not mention a Resilience and Sustainability Facility, approved for Kenya in July 2023, which had by the end of last October disbursed $180.4m of the total $541.3m.

Teferra said IMF had received a formal request for a new programme from the Kenyan government without specifying if it will be a lending or non-lending programme.

Finance minister John Mbadi told Reuters last month that the government would be seeking a financing programme.

New deal, best-case outcome

“The market is a little disappointed as anyone would be,” said Charlie Robertson, head of macro-strategy at FIM Partners, adding that as much as $800m in financing across various IMF lending programmes may no longer be forthcoming.

However, he said that prospects for a new IMF deal, a yet untapped $1.5bn loan from the United Arab Emirates (UAE) and a $1.5bn Eurobond issued last month were all reassuring investors.

“A funded IMF deal would be the best-case outcome,” Robertson said, adding that a new programme could ideally include funds from the abandoned review.

The current ECF-EFF programme began in April 2021. Its implementation, however, has been hampered by deadly anti-tax hike protests last year and a row over new borrowing from the UAE.

The government has been scrambling to secure new sources of financing, including efforts to boost domestic revenue collection, to keep up with the debt servicing burden and pay for critical expenditures such as climate change adaptation.

Kenya’s total debt-to-GDP stood at 65.7% by June last year, finance ministry data showed, well above the 55% level considered a sustainable threshold.

Last month, it joined a fast-growing club of African nations that have gone to the market in recent months, to borrow cash to pay off maturing debts in a bid to smooth out liabilities and ring-fence critical expenditures like health.

Others who have carried out those so-called liability management exercises include Ivory Coast and Angola.

Reuters