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IMF to approve Kenya's Sh68b loan request next year

BUSINESS
By Jackson Omondi Okoth | November 15th 2014

The Government and the International Monetary Fund (IMF), are to sign a stand-by loan deal totaling Sh65.5 billion ($750 million) to support the county’s economic reforms, including big ticket infrastructure and energy projects.

This follows conclusion of a fact finding mission led by Visiting IMF Assistant Director for African Department Mauro Mecagni, between October 22 November 9, 2014.

The mission reached staff-level agreement on a programme that will be supported by the IMF through a stand-by arrangement and stand-by credit facility.

Final decision

However, the Government will have to wait until January 2015, when the IMF executive board makes a final decision on the precautionary loan deal. “This arrangement will serve an insurance purpose, providing Kenya with access to IMF resources in the event of exogenous shocks. The programme will accommodate the Standard Gauge Railway (SGR) project and other initiatives launched by the State to remove hurdles to growth, while reducing vulnerabilities and preserving a sustainable debt position,” said Mecagni at the end of the mission.

The IMF team gave its approval to the SGR project, describing it as a major step for Kenya and the region. The new rail is expected to boost integration across East Africa by reducing transport costs, bringing down the cost of doing business and improving standards of living for Kenyans. “The SGR’s initial construction work will contribute to higher real GDP growth, projected to rise to 6.9 per cent in 2015 from 5.3 per cent in 2014. Imports of equipment for the SGR project combined with continued investment in oil exploration are expected to keep the external current account deficit relatively high at around 8.5 per cent of the gross domestic product in 2015, albeit a slight decline from a projected nine per cent deficit in 2014 thanks to lower international oil prices,” said Mecagni.

While the shilling has been weakening in the last few months, to hit a three year-low of Sh90.05 buying and Sh90.15 selling to the greenback, IMF and Treasury maintain that the exchange rate is within acceptable margins. “A gradual depreciation of the shilling mostly reflects developments in international currency markets, and international reserves stand at 4.9 months of prospective import cover, boosted by proceeds from the successful June 2014 sovereign bond issuance,” said Mecagni.

IMF says the economy remains robust, supported by strong credit growth and a dynamic investment environment. Inflation has declined to 6.43 per cent in October 2014 from 6.6 per cent in September. Investment in power generation like geothermal energy, is translating into lower electricity bills for firms and households.“However, difficult security conditions are having a dampening effect on the tourism sector,” said Mecagni.

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