The International Monetary Fund (IMF) has disclosed new conditions for Kenya to access the $1.5 billion precautionary loan facility.
In this case, East Africa’s largest economy will have to conform to the set conditions before the release of the funds in early 2020.
First, the Treasury needs to reduce the fiscal deficit which averaged 7.7 per cent of the GDP in the 2018/2019 financial year.
Moreover, the IMF is worried about the rising fiscal deficit as it could plunge the country into debt distress. For instance, in October the Senate approved the revising of the debt ceiling to Ksh9 trillion ($90 billion).
Furthermore, Kenya public debt hit Ksh.5.6 Trillion in September 2018 and is projected to hit over Ksh 6.5 Trillion by the end of 2019. Interestingly, debt repayment for the 2018/2019 fiscal year amounted to Ksh775 billion.
READ ALSO: IMF to renew Kenya’s US$ 1.5 Billion Loan Facility in early 2020
IMF also expects the government to make tax and expenditure reforms that do not hinder economic growth nor subdue the private sector.
Kenya is grappling with missed tax revenues, falling export earnings, and unpredictable remittance inflows.
Initial conditions
In addition to the new conditions, the IMF had been pushing Kenya to make reforms prior to renewal of the loan facility in September 2018.
For instance, there was an insistence on interest cap repeal. The cap was removed in October. IMF praised the rate cap removal saying that it frees more credit to the private sector and gives CBK more monetary policy flexibility.
Treasury also introduced 8 percent VAT on all petroleum products as required by the international monetary institution.
The IMF standby loan facility will help cushion the Kenyan Shilling from economic shocks. In addition, it will the country avoid a negative balance of payment position as the country struggles to service its import bills and foreign-denominated debts.
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