IMF beckons Kenya to sell international bond

IMF deputy managing director Naoyuki Shinohara. FILE

What you need to know:

  • Improved policies place country in a good position to tap finances, says official.

The IMF has nudged Kenya to borrow money from the international markets, sending out a signal that the country is ready to issue the long-delayed sovereign bond.

While announcing its final disbursement of Sh9.5 billion out of a three-year Sh64 billion ($750 million) foreign exchange support loan, the International Monetary Fund on Tuesday said Kenya’s economy would support borrowing from international markets.

“Improved policies have placed Kenya in a good position to tap the international financial markets,” said IMF deputy managing director Naoyuki Shinohara in a statement.

“The external and fiscal positions are now stronger, high inflation has been tamed, and the economy’s resilience to shocks has been boosted.”

The IMF, however, said it stands ready to help Kenya manage emerging economic risks. The three-year Extended Credit Facility (ECF) negotiated in 2011 offered much needed forex support, but was tied to tough reform measures such as enacting new taxes and a freeze on employment of civil servants.

“Although Kenya’s economic outlook is favourable, both external and domestic risks persist. Continued engagement with the fund could help the authorities manage these risks,” states the statement.

One aid condition, a three-year freeze of wage increases, was breached as various groups were given salary increments and extra allowances beyond the inflation rate.

The IMF deputy MD said Kenya had performed well under the programme and it would want to continue to engage the authorities, even after the final disbursement. Such engagement would be critical in view of risks to the economy, he said.

“The IMF today completed the sixth and final review of Kenya’s economic programme supported by a three-year arrangement under the Extended Credit Facility. The completion of the review enables the immediate disbursement of about $110.2 million,” Mr Shinohara said.

But analysts remained uncertain as to whether the Kenya government should negotiate for yet another balance of payment support package.

Some wondered whether it was necessary in view of the fact that it was encouraging imports and questionable management of budget resources, while others said donors were free to financially support whatever policies they wished.

“This balance of support is not really necessary. It will only encourage imports and waste. The auditor-general has revealed lack of accountability and extensive resource misuse.

Public policy watchdog

“Forex loans have to be repaid with interest and it is the first charge on the Consolidated Fund. Why do we need more aid?” asked Mwalimu Mati, who runs public policy watchdog Mars Group.

Mr Mati said the revelation by former Treasury PS Joseph Kinyua (in 2010) that 30 per cent of the budget resources were mismanaged was a clear indication that the country does not need any foreign aid.

Mr Shinohara said in the statement that he was happy with reforms such as the enactment of the Value Added Tax Act 2013 and maintenance of macroeconomic stability.

The Central Bank of Kenya (CBK) had managed to keep inflation in check even after the introduction of the VAT Act ,which had raised prices, the IMF noted.

“The CBK has gained credibility by maintaining inflation within its target for 12 consecutive months. A tighter monetary stance following the VAT-related spike in headline inflation in September has been key to keeping inflation expectations at low levels,” said the IMF.

It pointed out that public financial reforms had been carried out and expected that this would be sustained.

“The authorities have demonstrated a strong commitment to fiscal discipline. Provided that devolution proceeds in an orderly manner, their medium-term fiscal plans give assurance that prudent policy making will continue in the period ahead,” the IMF said in the statement.

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