The International Monetary Fund (IMF) is keeping the precautionary credit facility granted to Kenya in 2016, as against earlier reports of the withdrawal. This gives Kenya another chance to secure the facility to hedge the economy against a sudden shock after the prolonged elections had dragged negotiations. It is also a significant boost as the IMF’s $1.5 billion precautionary credit facility is set to remain in place until the end of March 2018
On Tuesday, Jan Mikkelsen, the IMF Resident Representative in Nairobi, made the clarifications in a press release after reports had claimed they lost the IMF’s credit facility in June. “Further to some press reports earlier today, I would like to clarify the status of Kenya’s Fund-supported program,” he said.
“The precautionary SBA/SCF arrangement remains in place until end-March 2018. The second and third reviews of the program, due respectively in June and December 2017, could not be completed on schedule as an agreement could not be reached on stronger fiscal policies, and discussions were postponed due to the prolonged election period. Kenya continues to have access to resources since June subject to policy understandings to complete the outstanding reviews.”
The IMF representative further explained that “an IMF staff team is currently in Nairobi for discussions on a possible new program and we are hopeful for an agreement.”
The 2-year precautionary facility, set to expire at the end of next month, is needed in case of unforeseen external shocks that could put pressure on Kenya’s balance of payments. Negotiations have dragged for this long with the Washington-based organization because the loan agreement required the country to narrow the budget deficit in the 2018-19 budget year to reduce the risk of entering a debt distress. According to Central Bank data, Kenya’s reserves stood at $7.24 billion on February 15th, just enough to cover about four-and-half months of imports and enough to cover potential shocks in the short-term.
The standoff for almost three-quarters of the year following the last election, had caused uncertainty in both economic and fiscal policy. It also put the economy under pressure when it had to settle matured Eurobonds last year — the government is planning to issue another round of Eurobond to settle the matured debts later this month. Kenya’s total debt has risen to about 50 percent of GDP, from 42 percent in 2013. The country has built infrastructure with loans gotten locally and abroad.
“The facility is in place but permission to access it has been withdrawn,” said Kenyan economist Anzetse Were. “This comes at a bad time… we’ve seen Moody’s downgrade us to B2 from B1, and this is particularly important in the context of Kenya trying to raise a Eurobond.”
In the meantime, the delegation of Kenyan officials on a roadshow in the U.S. are holding on to the belief that they have convinced investors enough for the Eurobond offering the government is planning for later in the month or next month.
Analysts think the East African country wouldn’t try to use the IMF funds for proposed projects, only keeping it as precautionary. However, the IMF credit facility will serve as a good backing for the government seeking loans from the foreign and domestic markets.