National Treasury Cabinet Secretary (CS) John Mbadi has revealed that the delay in approving a new loan for Kenya by the International Monetary Fund (IMF) is due to a disagreement over how the country’s new borrowing model should be classified.
Speaking to Reuters, CS Mbadi said the IMF has held back approval of Kenya’s next funding program because it wants the government’s new revenue securitization plan to be recognized as public debt.
Securitization refers to the process by which a government converts future revenue streams, such as taxes, royalties, or other public income, into immediate cash by issuing securities such as bonds or notes, backed by those future revenues.
It encompasses the creation of a Special Purpose Vehicle (SPV), a separate legal entity to isolate these future revenues from general government finances. The SPV is assigned the rights to collect or receive those future revenues.
IMF Delays Kenya Loan Over Dispute on Revenue Securitization
Kenya, which is grappling with rising debt repayments and limited fiscal space, has recently turned to the securitization of some revenues and borrowing against them as an alternative means of financing infrastructure projects.
While the government views this approach as a way to access funding without increasing its official debt stock, the IMF insists that such borrowing still constitutes debt and should therefore be recorded as part of Kenya’s public liabilities.
Meanwhile, Central Bank of Kenya (CBK) Governor Kamau Thugge, while speaking during a Monetary Policy Committee (MPC) briefing last month, said the government prefers a funded program to support economic stability and ongoing reforms.
“We expect an IMF mission to start negotiations on a new programme. We expect that when the programme is presented to the board, it will be discussed alongside the Article IV consultation discussions,” Thugge said.
“Our preference will be to have a funded programme, and that is what we have expressed to the Fund.”
Also Read: Why IMF Visits Countries and What to Look Out for
Kenya Eyes New IMF Loan as Pending Bills and Debt Challenges Persist
This comes after Kenya’s $3.6 billion (Ksh465 billion) program with the IMF expired in March this year.
The premature termination of the previous IMF program resulted in the forfeiture of an undisbursed tranche worth approximately Ksh110 billion ($850 million).
Treasury officials have expressed interest in negotiating a new arrangement that will include a lending component to support budget execution.
However, two other sticking points remain — a build-up of pending bills, now estimated at over Ksh520 billion ($4 billion), and repeated shortfalls in meeting tax collection targets.
Part of the arrears, particularly in the roads sector, is expected to be settled through securitization.
Kenya’s public debt currently stands at approximately Ksh 11.8 trillion, although a recent Debt Sustainability Analysis described it as “manageable.”
Also Read: IMF Hints at New Loan for Kenya as Nairobi Staff Visit Ends
IMF Raises Alarm Over Static Kenya Shilling Versus Dollar
The IMF has also expressed concern over the unusual stability of the Kenyan shilling against the US dollar, despite global currency shifts that were expected to strengthen the local unit.
In its recently concluded staff visit to Nairobi, the IMF noted that the shilling has remained “too stable,” trading within a narrow range of Ksh129.22 to Ksh129.24 for most of the past 12 months.
This comes even as the dollar has weakened by nearly 10 percent against several major global currencies since the beginning of the year.
According to the IMF, the shilling’s limited fluctuation could be disrupting the transmission of monetary policy and making inflation targeting more difficult for the Central Bank of Kenya.
The Fund’s mission in Nairobi sought to assess Kenya’s current economic conditions and discuss the possibility of a new IMF-supported program.
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