Protests in Kenya Show Issues with Global Financial System

In response to the economic fallout from the COVID-19 pandemic, the International Monetary Fund (IMF) issued $650 billion in Special Drawing Rights (SDRs) in 2021, with Kenya receiving $738 million to bolster public spending, particularly in health and social protection. Additionally, Kenya entered a borrowing agreement with the IMF, initially set at $2.4 billion but later increased to $3.6 billion, which comes with stringent policy conditions. As the global debt crisis deepens, with over a third of countries experiencing debt distress, emerging and developing nations are dedicating an average of 42 percent of their revenues to debt servicing. In Kenya's case, it is projected to pay approximately $174 million in surcharges to the IMF over the next decade. While the IMF funds have helped Kenya maintain its reserves, the country now faces escalating costs from private lenders, having recently traded a Eurobond at a lower interest rate for a new issuance with a significantly higher coupon rate. The situation is further complicated by the experiences of other nations, such as Sri Lanka, which defaulted on its debt in 2022 and struggled to negotiate terms with creditors despite IMF assistance. In Kenya, ongoing protests have led to currency devaluation and downgrades in credit ratings, while the World Bank has revised its growth forecasts downward. The economic impact of recent floods is also significant, with losses already estimated at over $300 million.