Kenya, IMF in talks on new credit facility

Kenya is working on a new credit facility with the International Monetary Fund (IMF) in a move to restore its credibility in the international market.

A report by an IMF team that ended a 10-day visit to Kenya last week said the country had inched closer to debt distress, with the risk of defaulting on debt repayment increasing from low to moderate.

“A staff team from the International Monetary Fund (IMF), led by Benedict Clements, visited Kenya from December 10-20, 2018, to hold discussions on a new IMF-supported programme,” reads a statement from the IMF released from Washington late on Friday.

A stand-by arrangement (SBA) amounting to $989 million (Sh100 billion) that the country had with the global lender expired in September

Although Kenya had not drawn from the precautionary facility, analysts insisted the country would have it rough in the international market without it.

After the expiry of the facility, National Treasury Cabinet Secretary Henry Rotich said Kenya should be relying less on IMF facilities as it had come of age as far as management of macro-economy is concerned.

“But we can still engage and get back to it if we feel it is still necessary. We will continue to engage with the fund going forward, the way we have done it in the past,” he said.

Fiscal deficit

Kenya lost access to the SBA in July 2017 after its expenditure far exceeded its revenue, leading to the widening of the fiscal deficit.

Moreover, relations between Kenya and IMF got frostier after the country enacted a law that put a ceiling on interest rate banks charge on loans, with the lender insisting that the move reduced the flow of credit to small and medium-sized enterprises.

“Access to the money and programme was lost due to the failure to complete that review,” said IMF Resident Representative Jan Mikkelsen when he appeared before the National Assembly’s Budget Committee.

In its end-of-mission press release, the IMF team also noted that although Kenya was able to narrow the gap between revenue and expenditure - fiscal deficit - this was achieved at the expense of critical development projects.

“Revenues were significantly lower than budgeted and 0.4 percentage points of GDP, lower than the previous fiscal year. As a result, the fiscal consolidation was primarily achieved by reducing public investment,” read the statement.

Fiscal consolidation is a policy aimed at reducing government deficits and debt accumulation.