Kenya’s $ 1.5 Billion precautionary facility with the International Monetary Fund (IMF) expired last week, which saw the Kenyan currency take a dip against the US dollar and rattle investors at the Nairobi Securities Exchange (NSE).
According to Teneo, a global advisory firm that works exclusively with the CEOs and leaders, ‘’the lapse of the program is evidence of the government’s short-term thinking and a clear blow to the sovereign’s credibility amid growing concerns over Kenya’s fast-growing debt burden.’’
The report also highlights the perceived standoff between the government, the cabinet secretary for finance, Henry Rotich and parliament which has consistently refused to budge on a reversal of the controversial 2016 interest rate caps and the introduction of a 16 per cent value-added tax (VAT) on fuel products which president Kenyatta proposed to slash by 50 per cent to 8 per cent, were central to the continuation of the IMF program.
The report also notes that the government’s inability to push the legislation through parliament clearly increased the risk that the IMF program would expire without a new deal in place.
‘’The president still needs to decide how to deal with the finance bill. If he assents to the bill, it will be a further sign that the government is failing to prioritize fiscal prudence and bolster the economy by revoking the interest rate cap, which has failed to deliver a hoped-for stimulus to private-sector lending.’’ The report reads.
Calls to Remove Rotich
Kenya's Finance Minister Henry Rotich says the country doesn't need IMF Facility pic.twitter.com/3Tk3K2Xcsm
— Kenyan Wallstreet (@kenyanwalstreet) September 17, 2018
According to Teneo, the biggest loser from the standoff could be the country’s Finance Minister Henry Rotich, who has failed to please both MPs and the IMF.
“Calls for his removal may now intensify, particularly after he directed the Kenya Revenue Authority and the Energy Regulatory Commission to implement the VAT measure despite parliamentarians opting against it. The finance minister’s predicament is symptomatic of the current state of Kenyan politics, where politicians have taken economic policy-making hostage in the pursuit of short-term political goals at the expense of public finance stability.’
Kenya’s public debt currently stands at 58% of GDP and continues to rise but according to the country’s PS for National Treasury Mr Kamau Thuge, not having an IMF precautionary arrangement would not hurt the economy. According to Bloomberg, Mt Thuge argues that “Kenya’s ‘debt is sustainable at 49 per cent of net present value and the Treasury intends to keep it below 50 per cent. The IMF recommended the government not exceed a threshold of 74 per cent of net present value.”