The International Monetary Fund ended Kenya’s access to a $1.5bn standby credit facility last June but the country’s central bank continued to report as recently as last month that the money was still available.
Jan Mikkelsen, the IMF representative in Nairobi, told the Financial Times that access was lost in mid-June because “a planned review was never completed”.
“It became too difficult to get an agreement on the fiscal position because of the election period, which became increasingly protracted,” he said. “So we never got to the point where the review could be done.”
Kenya held presidential and legislative elections last August but the supreme court nullified the result of the presidential vote. A fresh vote was held in October and President Uhuru Kenyatta’s re-election victory was not confirmed until several weeks later.
Mr Mikkelsen said both the Kenyan government and the central bank were made aware last June that access to the standby facility was no longer available after the government failed to meet budget-deficit targets attached to the loan agreement.
However they continued to say that it was available. The monetary policy committee of the Central Bank of Kenya said in its statement after a meeting on January 22: “The CBK foreign exchange reserves… together with the Precautionary Arrangements with the IMF, equivalent to USD $1.5bn, continue to provide an adequate buffer against short term shocks in the foreign exchange market.”
Central bank officials said it was up to Patrick Njoroge, the governor, to issue a response.
Henry Rotich, the finance minister, is abroad marketing Kenya’s plan to issue a Eurobond in the next few weeks. Other officials did not respond to requests for comment.
Mr Mikkelsen said an IMF team was currently in Nairobi discussing a replacement to the facility, which expires next month. The international agency’s two main criteria for a new programme are “a fiscal trajectory that sees a declining deficit to stabilise the debt situation” and the elimination or significant revision to the law capping interest rates.
The IMF representative said an announcement would be made at the end of next week on how much progress had been made.
“The Kenyans have requested it,” Mr Mikkelsen said. “They’ve said it’s helpful for them and is giving support for their economic policy and when they go to the market.”
The facility comprised $495m in interest-free credit repayable over eight years and a $990m arrangement repayable with interest over five years. They were available if Kenya faced “exogenous shocks”.
The agreement required the country to narrow the budget deficit to 3.7 per cent of gross domestic product in the 2018-19 budget year to reduce the risk of debt distress while providing space for spending priorities.
The deficit is projected to reach 7.2 percent in the financial year that ends this June 30, and 6 per cent in 2018-19, according to the Kenyan finance ministry.
Bloomberg first reported that Kenya lost access to the credit facility.
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