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Kenya inches close to IMF's $1.5bn loan after meeting demands

Reversal of some of coronavirus tax cuts and addition of parastatal loans to public debt are some of the latest measures

In Summary
  • Kenya's IMF facility expired in 2018 
  • On Monday, credit rating firm, Moody's Investment alluded to a similar view in its regular opinion.
The National Treasury building
The National Treasury building
Image: FILE

Kenya may soon renew a $1.5 billion standby facility from the International Monetary  Fund that expired in 2018 after implementing fiscal measures as demanded by the lender

A National Treasury official told the Star that reversal of some of coronavirus tax cuts and addition of parastatal loans to public debt are some of the latest measures implemented by Kenya to access the facility.  

''Kenya has implemented most of the demands put on the table by IMF for the standby facility. Those measures will also help accelerate the decision on another request of a $2.3 billion (Sh250 billion) extended fund facility,'' said the official who requested not to be quoted. 

On Monday, credit rating firm, Moody's Investment alluded to a similar view in its regular opinion.

''Kenya's reversal of some coronavirus tax cuts sends a strong signal of the government’s commitment to repairing its fiscal position, which will support efforts to reach an agreement with the IMF,'' Moody's said. 

A team from IMF, led by Benedict Clements, visited Kenya from February 19-March 3 last year for discussions with National Treasury officials for a new precautionary three-year arrangement. 

The team delivered a positive comment about the country's economy and fiscal plan to the fund's executive board. 

Under the Stand-By Arrangement (SBA), IMF offers a precautionary credit line that can be drawn incase of external shocks on the economy but a country has to adhere to pre-agreed policy conditions and fiscal discipline.

The international lender gave Kenya tough fiscal conditions to meet in order to renew the facility before expiry on September 13, 2018, but the Parliament voted against most of them.    

These included repealing the interest cap law that locked lending rates at four per cent above the base lending rate of nine per cent, reducing the country’s fiscal deficit as well as implementing the 16 per cent VAT on fuel.

Evens so, after a year of push and pull, Kenya yielded to IMF's pressure and implemented those conditions, but it was too late. The lender slapped the country with fresh conditions. 

Early this year, Kenya bowed to IMF's pressure to include Sh3.4 trillion parastatal and county loans as part of the country’s national debt, a move that is likely to push total public debt beyond Sh9.1 trillion debt ceiling. 

Although the exchequer is planning to add the debt gradually, this could in the long run push the country's total debt to Sh12.1 trillion.

The absence of IMF's facility has negatively affected Kenya's forex exchange defence mechanism in the past two years, weakening the shilling against major international currencies. 

This coupled with Covid-19 social-economic difficulties saw the shilling drop to a record low of 111.5 units against the greenback.