CUSHION

Kenya likely to ink Sh151.5 billion IMF loan early next year

Last year, Treasury introduced a raft of new taxes including an eight per cent tax on petroleum products as part of domestic revenue mobilisation demands set by IMF

In Summary
  • IMF has planned another meeting early next year to discuss a new precautionary stand-by arrangement 
  • According to the Washington based lender, the elimination of the interest rate controls will also provide greater flexibility for monetary policy
Treasury CS Ukur Yatani.
Treasury CS Ukur Yatani.
Image: FILE

Kenya is on course to renewing its $1.5 billion (Sh151.5 billion) standby credit facility with the International Monetary Fund (IMF), after meeting most demands set by the international.

On Friday, IMF’s team which visited the country from November 18 to discuss recent economic development and reform plans hailed economic growth and fiscal plan as solid.

Another mission is planned in early 2020 to hold discussions on a new precautionary stand-by arrangement and undertake the Article IV consultation discussions.

“Kenya’s economy has continued to perform well. Real GDP growth averaged 5.6 per cent in the first half of 2019, despite the late-onset and below-average rainfall that affected agriculture production. Growth is expected to accelerate in the second half of 2019 and 2020.  Inflation has remained within the target band and stood at 5.0 percent in October (year-on-year).

The team led by Benedict Clements said Kenya’s current account deficit has narrowed, and foreign exchange reserves are adequate.

It added that Real GDP growth averaged 5.6 percent in the first half of 2019 and is expected to accelerate in the second half of 2019 and 2020. Inflation has remained within the target band and stood at five per cent in October (year-on-year).

‘’Although credit growth has remained low (6.6 per cent year-on-year in October) it is expected to rise steadily because of the recent elimination of interest rate controls and deployment of innovative credit products targeting small enterprises,’’ IMF team said.

According to the Washington based lender, the elimination of the interest rate controls will also provide greater flexibility for monetary policy.

After reaching a budget deficit of 7.7 per cent of GDP in FY2018/19, the authorities aim to significantly reduce the deficit. Progress in this direction, including the design of tax and expenditure reforms that support a growth-friendly fiscal consolidation, would be important to anchor a new Fund-supported program,’’ the lender said at the End of Mission statement.

The kind words from IMF are coming just two weeks after President Uhuru Kenyatta assented to the Finance Bill, 2019, which repealed Section 33b of the Banking Act, which capped commercial banks' interests at four per cent above Central Bank Rate in 2016.

A source at the National Treasury told the Star in confidence that the exchequer renewed commitment to free credit to the private sector, reduce the fiscal deficit to as low as five per cent in the current financial year from 7.2 per cent last year as part of the new conditions to return to the IMF programme, which expired in September 2018.

The government also mobilized five commercial banks to come up with Stawi, a mobile loan product targeting MSMEs that was launched immediately the cap on interests was removed.

Last year, Treasury introduced a raft of new taxes including an eight per cent tax on petroleum products as part of domestic revenue mobilisation demands set by IMF.

The IMF team met with the Acting CS Treasury Ukur Yatani, CBK governor Patrick Njoroge, head of the public service Joseph Kinyua and Treasury PS Julius Muia.