Kenya is keen to secure a new stand-by credit agreement with the IMF after the previous one expired in 2018.
A key impediment to the deal was removed last November when the government repealed a cap on commercial lending rates.
Bankers and the IMF had demanded its removal in order to boost credit growth in small and medium-sized businesses.
Failure by the government to curb spending and mounting public debt derailed the renewal of the $1.5 billion (Sh150 billion) stand-by facility that expired in September 2018.
The International Monetary Fund (IMF) and the Kenyan government have moved a step closer to agreeing on a new stand-by credit facility after the multilateral lender backed the government’s Sh161 billion budget cuts.
Cutting the wide budget deficit has been one of the conditions the Bretton Woods institution has placed on Kenya before it signs off on a new precautionary facility that works as an insurance against shocks hitting the economy.
Kenya is keen to secure a new stand-by credit agreement with the IMF after the previous one expired in 2018.
A key impediment to the deal was removed last November when the government repealed a cap on commercial lending rates. Bankers and the IMF had demanded its removal in order to boost credit growth in small and medium-sized businesses.
Failure by the government to curb spending and mounting public debt derailed the renewal of the $1.5 billion (Sh150 billion) stand-by facility that expired in September 2018.
An IMF team was in the country between February 19 and March 3 and held talks with President Uhuru Kenyatta, Treasury Secretary Ukur Yatani, Central Bank of Kenya (CBK) Governor Patrick Njoroge and other top government and private sector players.
“There is broad agreement on the main principles of a plan for growth-enhancing fiscal consolidation that would cut waste and boost revenues to enable priority spending while reducing the deficit to below four percent of GDP by the 2022/2023 fiscal year,” said the IMF team in a statement.
“Technical work will continue to firm up underpinnings of the plan, which could be supported by a Fund arrangement.”
There was no comment from either the IMF or the government on when a new deal would likely be reached.
Mr Kenyatta’s government has been criticised for borrowing heavily since coming to power in 2013, and his administration was forced to raise its borrowing ceiling last year after breaching initial targets.
Kenya’s fiscal deficit, which peaked at 9.1 percent of GDP in the 2016/17 financial year, has been partly driven by higher spending on infrastructure projects including a new railway line financed by China.
The finance ministry plans to set a budget deficit of 4.9 percent of GDP in the fiscal year to June 2021, down from 6.3 percent this financial year.
Fiscal gaps have been accompanied by the consistent failure of the Kenya Revenue Authority (KRA) to meet its revenue collection targets. This has triggered cuts on recurrent expenditure following an order from the Treasury for ministries to slash budgets for lavish travel, advertising and trainings, which the State reckons were examples of wasteful spending.
The two-year precautionary facility, set to expire in March 2018, was put in place in case of unforeseen external shocks that could put pressure on Kenya’s balance of payments. Kenya had not tapped the facility, which was preceded by a smaller stand-by one-year credit line in 2015, as foreign exchange reserves held by the CBK have soared to record highs.
CBK on Monday said it would buy $400 million (Sh40.9 billion) from local banks in the next four months ($100 million per month) to bolster its reserves, taking advantage of low price of oil and reduced demand from importers.
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