IMF Extends Kenya's $1.5 Billion Standby Loan for Six MonthsBy
Lender withdrew Kenya’s access to standby loan in June
Funds were available to Kenya if it faced ‘exogenous shocks’
The International Monetary Fund approved Kenya’s request for a six-month extension to a $1.5 billion standby facility to allow the nation time to complete reviews of the lender-supported program.
The government sought an extension to the facility to complete the delayed reviews, before embarking on talks about a new potential program. The current agreement comprises a $990 million arrangement repayable with interest over five years, and a $495 million, interest-free credit repayable over eight years.
“Completion of the reviews will enable the Kenyan authorities to have access to funds available under the precautionary” stand-by arrangement, the fund said in a statement on Tuesday. “The reviews are expected to be completed by September 2018.”
The IMF withdrew access to the standby facility in June after the government failed to meet budget-deficit targets, due to higher than planned expenditure caused by a drought and protracted elections. Despite that withdrawal, the Kenyan central bank’s Monetary Policy Committee continued to say the country had access to the funds.
The funds, approved by the IMF in March 2016, were accessible to Kenya if it faced “exogenous shocks” that led to a balance-of-payments crisis.
The National Treasury projects a budget deficit of 7.2 percent of gross domestic product in the fiscal year through June and plans to narrow it to 5.6 percent in the following year and 3 percent by 2022. The Treasury is preparing a supplementary budget that’ll reduce this fiscal year’s spending as revenue collection falls below the target, Treasury Secretary Henry Rotich said earlier this month.
Kenyan authorities have committed to substantially modifying the interest controls introduced in 2016 so they can achieve the program objectives, the fund said. The controls constrained private-sector credit growth and complicated monetary policy, it said. Credit expansion slowed to 2.4 percent in the 12 months through December, the lowest annual growth rate since at least 2005, central bank data show.
The extension, “partly on the belief that loan rate caps will be modified, suggests this may be less of a constraint,” Razia Khan, Standard Chartered Plc’s chief economist for Africa, said in an emailed note.