CREDIT MISSION

IMF ends Kenya mission, no firm word on stand-by credit facility

The IMF team praised the country's narrowing current account deficit which is currently at 4.6 per cent from five per cent in 2018.

In Summary
  • Kenya has been operating without the facility meant to act as buffer in case of volatility since it expired in September 2018.
  • On Tuesday, CBK announced plans to buy Sh10 billion in dollar currency every month to June to solidify its reserves in case of increasing global risks.
President Uhuru Kenyatta with IMF Resident Representative of Kenya Ragnar Gudmundsson at State House, NairobI, Jul 10 2014. /PSCU
President Uhuru Kenyatta with IMF Resident Representative of Kenya Ragnar Gudmundsson at State House, NairobI, Jul 10 2014. /PSCU

IMF renewal of Kenya's $1.5 billion (Sh150 billion) precautionary  stand-by credit facility is under consideration.

An IMF delegation from Washington that has been in the country from February 19 left yesterday expressing satisfaction with Kenya's fiscal progress.

The team was in the country in November last year to review Kenya's economic developments and the government’s reform plans.

Kenya has been operating without the facility meant to act as buffer in case of volatility since it expired in September 2018.

On Tuesday, Central Bank of Kenya announced plans to buy Sh10 billion in dollar currency every month to June to solidify its reserves in case of increasing global risks.

''A staff team from the International Monetary Fund , led by Benedict Clements, visited Kenya to conduct the Article IV consultation discussions with the authorities and undertake negotiations on a new precautionary three-year Stand-By Arrangement/Stand-By Credit Facility,'' reads IMF's end of mission statement issued late Tuesday.

The team met top officials among them  President Uhuru , National Treasury CS Ukur Yatani, CBK governor Patrick Njoroge, head of the public service Joseph Kinyua and PS Treasury Julius Muia.

Discussions dwelt on revenue and expenditure policies needed to reduce the deficit this fiscal year and achieve further fiscal consolidation over the next three years.

This is aimed at reducing debt vulnerabilities while preserving high-priority, growth-enhancing public investment and social spending.

“Significant progress was made during the visit, and discussions will continue in the coming period,'' Clements said.

The team said Kenya’s economy continues to perform well with an estimated GDP growth of 5.6 percent in 2019, driven by the continued resilience of the service sector.

This helped offset a slowdown in agriculture due to delayed rains in the first half of the year and excessive rains later in the year.

The team praised the country's narrowing current account deficit currently at 4.6 per cent from five per cent in 2018, mainly due to lower imports of capital goods and petroleum products, offsetting a decline in goods exports.

 
 

It said there is broad agreement on the key principles of a plan for growth-enhancing fiscal consolidation to cut waste, boost revenues and enable priority spending while reducing the deficit to below four per cent of GDP by FY2022/23 as targeted in the draft Budget Policy Statement.

The delegation also welcomed  reforms in Kenya's banking sector, especially the repeal of interest cap law in November last year.

The banking sector remains well-capitalised. Liquidity risk has eased with improved distribution across all banks," Clements said.

Further noting that lending to the private sector has started to gain momentum. Credit is expected to rise further following the removal of interest rate controls.

He said the Banking Sector Charter will further strengthen financial stability and increase access to financing, including for small businesses.