NewsEast & Horn AfricaIMF says it stopped Kenya's access to $1.5 bln standby credit


Posted on Tuesday, 20 February 2018 13:27

IMF says it stopped Kenya's access to $1.5 bln standby credit

By Reuters

The International Monetary Fund (IMF) is seen in Washington, Tuesday, June 28, 2011. Photo: Alex Brandon/AP/SIPAThe International Monetary Fund stopped Kenya's access to a $1.5 billion standby credit facility last June after failing to agree with the government on a reduction of the fiscal deficit, the fund said on Tuesday.

The two-year precautionary facility, set to expire next month, was put in place for Kenya in case of unforeseen external shocks that could put pressure on the balance of payments. The East African economy has not yet tapped the facility, which was preceded by a smaller standby one-year credit line in 2015.

"The programme has not been discontinued but access was lost in mid-June because a review had not been completed," Jan Mikkelsen, IMF representative in Kenya, told Reuters.

"There was no agreement on the fiscal adjustment at the time and then I do believe the lengthy election period (later in the year) made it difficult to have a review and complete that in the period that followed."

The government did not respond to requests by Reuters for comment. It has published a plan to lower the deficit to 7% of GDP at the end of this fiscal year in June, from 8.9% in 2016/17, and to less than 5% in three years' time.

Mikkelsen said a team from the fund's Washington headquarters was in the country for talks on a Kenyan request for a new standby credit facility. He did not comment on the government's fiscal deficit reduction plan.

Total debt risen to 50% of GDP

"We have just started discussions," he said. "I'm hopeful we will get an agreement."

The fund wanted to see "substantial fiscal consolidation" to lower the deficit and put the country's debt onto a "sustainable path".

Kenya's total debt has risen to about 50% of GDP, from 42% in 2013, as it borrowed locally and abroad to build infrastructure like a new railway line from Nairobi to the port of Mombasa.

At the time it secured the precautionary facility from the IMF, officials at the fund said it was a triumph of Kenya's stable economic fundamentals, because that type of facility is usually reserved for more developed emerging economies.

But investor worries have grown due to the gaping fiscal deficit and sluggish private sector credit growth, after the government capped lending rates at 14% in 2016.

"The interest rate controls should either be eliminated or significantly modified to allow banks to price risks properly and thereby promote an increase in credit to the private sector," Mikkelsen said.

He said a reduction of the fiscal deficit and the elimination of the cap on commercial lending rates were key to a new agreement between the fund and Kenya.


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