Although its stand-by $989.8 million loan
deal to Kenya had expired, the International Monetary Fund (IMF) has
promised to continue to support its reform efforts in the country.
deal to Kenya had expired, the International Monetary Fund (IMF) has
promised to continue to support its reform efforts in the country.
IMF representative Jan Mikkelsen said in Nairobi that the support was because Kenya’s external position was strong.
Kenya had secured a six-month extension in March on the $989.8 million arrangement, which expires on Sept. 15.
However, the IMF set conditions for a
further extension, including the repeal of a cap on commercial lending
interest rates which was imposed in 2016, a move that parliament
rejected in a finance bill in August.
further extension, including the repeal of a cap on commercial lending
interest rates which was imposed in 2016, a move that parliament
rejected in a finance bill in August.
President Uhuru Kenyatta sent the bill
back to parliament on Thursday night, but what happens next regarding
the rate cap is not yet clear.
back to parliament on Thursday night, but what happens next regarding
the rate cap is not yet clear.
Mikkelsen confirmed what the government said on Thursday: that the deal was over.
“The second review of the IMF-supported programme has not been completed, and the programme will expire today,” he told Reuters.
“It should be stressed that Kenya’s
external position remains strong and foreign exchange reserves are at a
very comfortable level.”
external position remains strong and foreign exchange reserves are at a
very comfortable level.”
Foreign exchange reserves stood at $8.56
billion at the end of last week, equivalent to 5.71 months’ worth of
Kenyan imports, central bank data showed.
billion at the end of last week, equivalent to 5.71 months’ worth of
Kenyan imports, central bank data showed.
The bank is required by law to hold reserves worth a minimum of four months of import cover.
The central bank expected the current
account deficit to shrink to 5.4 per cent of gross domestic product at
the end of this year, from 5.8 per cent in June, Governor Patrick
Njoroge said in July.
account deficit to shrink to 5.4 per cent of gross domestic product at
the end of this year, from 5.8 per cent in June, Governor Patrick
Njoroge said in July.
Kenyan officials have played down the
significance of the expiry of the deal, which was agreed in 2016 to help
cushion the economy in case of unforeseen external shocks that could
upset the balance of payments.
significance of the expiry of the deal, which was agreed in 2016 to help
cushion the economy in case of unforeseen external shocks that could
upset the balance of payments.
However, Finance Minister Henry Rotich
said on Thursday that talks with the Washington-based fund would now
focus on the next type of facility Kenya could secure.
said on Thursday that talks with the Washington-based fund would now
focus on the next type of facility Kenya could secure.
“The IMF will continue to support Kenya’s
reform efforts through policy advice and capacity development,”
Mikkelsen said, without giving more details.
reform efforts through policy advice and capacity development,”
Mikkelsen said, without giving more details.
Kamau Thugge, the principal secretary at the finance ministry, had said on Thursday that the expiry would not hurt the economy.
Rotich tried to repeal the rate cap in
his June budget, but parliament voted to keep the upper limit while
getting rid of a minimum deposit rate it had previously imposed.
his June budget, but parliament voted to keep the upper limit while
getting rid of a minimum deposit rate it had previously imposed.
The cap was aimed at helping small
traders borrow at affordable rates, but has had the opposite effect,
with banks saying they cannot price risk to small and medium enterprises
(SMEs) properly while the cap is in place.
traders borrow at affordable rates, but has had the opposite effect,
with banks saying they cannot price risk to small and medium enterprises
(SMEs) properly while the cap is in place.
As a result, lending to the private sector fell from 9.3 per cent in 2016 to 2.4 percent last year.
Kenyatta is due to address the nation on
Friday, after rejecting the finance bill, which also sought to postpone a
widely unpopular tax on fuel.
Friday, after rejecting the finance bill, which also sought to postpone a
widely unpopular tax on fuel.
