What Treasury, CBK didn’t want you to know about IMF credit facility

 In the US looking for lenders, Treasury CS Henry Rotich. [File picture/Standard]

NAIROBI, KENYA: Kenya may have sunk into one of its worst financial holes in recent times.

It has emerged that the Government has been denied access to the International Monetary Fund’s precautionary credit facility, which leaves the country in a precarious position in the event of external shocks such as a sudden rise in the price of oil or strengthening of the US dollar.

The blocked access to the Sh150 billion stand-by credit facility with the IMF also sends a message to international investors who might question the country’s commitment to slashing non-essential spending and wideningof  its tax bracket, crucial factors that shore up a borrower’s ability to comfortably meet its debt obligations.

A team from Kenya led by National Treasury Cabinet Secretary Henry Rotich is on a roadshow in the US and UK trying to woo investors to buy into its second Eurobond issue of between $1.5 billion (Sh150 billion) and $3 billion (Sh300 billion).

Proceeds from the Eurobond will largely be used to settle maturing debts, known as refinancing. The rest will be used to fund development activities from the previous as well as current financial years.

Jan Mikkelsen, the IMF resident representative to Kenya, confirmed to The Standard that Kenya could not access the stand-by facility until a review was completed.

The revelations were made by Bloomberg, an international business intelligence agency. 

“The Bloomberg story is correct, although please note that the programme was not discontinued. Only access was lost. However, if a review had been completed, access would have been regained,” said Mr Mikkelsen in a text message to The Standard.

Conducting review

A team from the IMF is currently in the country conducting the review, which will determine if Kenya’s access to the facility will be reinstated.

Kenya will regain access if it can demonstrate adherence to a certain degree of fiscal discipline.

According to experts, the country needs the stand-by facility now more than ever before.

“If we sign up for an IMF programme, we will be signing up for a requirement of fiscal policy and that will provide reassurance to investors. So the risk premium that we have to pay on our debt declines,” said Standard Chartered Chief Economist Razia Khan when she was in Kenya recently.

She said with the facility, the country will have identified itself as a good reformer.

“It will be important for ease of Kenya’s refinancing in order to instill investor confidence and the confidence of rating agencies,” she added.

The Bloomberg article noted that although the IMF had withdrawn Kenya’s access to the stand-by facility valued at $1.5 billion (currently Sh150 billion), Central Bank of Kenya (CBK) still went ahead to publicly announce that the country had, in addition to $7 billion foreign exchange reserves, access to IMF’s “precautionary arrangements” valued at $1.5 billion.

“The CBK foreign exchange reserves currently stand at $7,009 million (4.7 months of import cover). These reserves, together with the Precautionary Arrangements with the IMF, equivalent to $1.5 billion, continue to provide an adequate buffer against short-term shocks in the foreign exchange market,” said CBK Governor Patrick Njoroge in a statement on January 22.

Public relations

University of Nairobi lecturer Samuel Nyandemo termed CBK’s announcement a public relations exercise aimed at “cultivating investor confidence”.

“We are no longer credit-worthy,” said Dr Nyandemo.

It is barely a week since Moody’s, an American credit rating agency, made good its threat to downgrade Kenya’s credit worthiness, which has dealt a blow to the country’s current efforts to raise money from the international market.

“The drivers of the downgrade relate to an erosion of fiscal metrics and rising liquidity risks that point to overall credit metrics consistent with a B2 rating,” said the agency last week.

“The fiscal outlook is weakening with a rise in debt levels and deterioration in debt affordability that Moody’s expects to continue.”

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