IMF Withdrew Permission For Kenya To Tap Standby Loan


The International Monetary Fund (IMF) withdrew Kenya’s access to a $1.5 billion standby loan in June. That hasn’t stopped the country’s central bank saying the funds are still available.

The Washington-based lender, which has a delegation visiting Kenya this week, removed permission to tap the precautionary financing after the government failed to meet budget-deficit targets attached to the loan agreement. It’s the first time the withdrawal of access has been made public.

Adjustments that were needed to meet the targets were “insufficient and follow-up discussions on the review were postponed due to the long election period,” IMF country representative Jan Mikkelsen said in an interview in the capital, Nairobi. “The second review of the program was not completed. As a result, access to the precautionary resources has not been available since mid-June 2017.”

Statements by the central bank’s Monetary Policy Committee after its past four meetings have referred to the availability of the standby facility. Its latest communication in January said the funds “continue to provide an adequate buffer against short-term shocks in the foreign-exchange market.”

The central bank didn’t respond to a request for comment sent by email on Feb. 15.

Credit Arrangements

The facility comprised a $990 million arrangement repayable with interest over five years, and a $495 million, interest-free credit repayable over eight years. The funds, approved by the IMF in March 2016, were available for Kenya to access if it faced “exogenous shocks” that led to a balance-of-payments crisis.

The loan agreement required the country to narrow the budget deficit to 3.7 percent of gross domestic product in the 2018-19 budget year to reduce the risk of debt distress while providing space for spending priorities. The shortfall is projected to reach 7.2 percent in the year that ends June 30, and 6 percent in 2018-19, according to the Treasury.

The government has requested a new IMF program to replace the existing one that expires in March. An IMF mission began a visit to Kenya this week to discuss its replacement, Mikkelsen said.

‘Sustainable Debt’

“Key issues for discussion include measures to reduce the fiscal deficit to ensure a sustainable debt path and measures to promote credit growth to the private sector,” he said. “On the latter, as previously noted, the IMF does see the interest-rate controls as an important constraining factor. Also, the interest-rate controls make it more difficult to manage monetary policy effectively.”

In the meantime, Mikkelsen said Kenya’s foreign-exchange reserve position remains “comfortable throughout and sufficient to address potential shocks in the near-term.” Kenya’s reserves stood at $7.24 billion on Feb. 15, enough to cover 4.8 months of imports, according to central bank data.

Over the past week, Kenyan officials have been conducting a roadshow for a planned sale of Eurobonds. The delegation and investors focused more on politics and the overall economy than the IMF facility, said Richard Segal, a senior analyst in London with Manulife Asset Management, a $400 billion money manager.

“What they did say was that any future facility would be treated as precautionary,” said Segal, who attended the London leg of the roadshow on Feb. 16. “They’d prefer to borrow from the markets — domestic or foreign — than tap the IMF directly. That’s the same stance as they’ve had in the past.”

Yields on the country’s existing 2024 bonds fell seven basis points to 6.57 percent by 3:32 p.m. in Nairobi.

This article was originally published on viewed 21st February 2018.

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