The International Monetary Fund (IMF) has extended Kenya’s access to a $1.5 billion precautionary facility for six months.
The IMF approved the extension of the standby credit facility to allow Nairobi complete outstanding review of programmes it supports.
“The Executive Board of the IMF approved Kenyan authorities’ request for a six-month extension of the country’s standby arrangement to allow additional time to complete the outstanding reviews,” said the IMF in a statement.
The facility, first approved in March 2016, was for $989.8 million alongside a standby credit facility of $494.9 million.
The facility is crucial for cushioning the country against any shocks to the balance of payments and the stability of the shilling at a time when the external current account deficit has been on the rise.
IMF said the reviews, which are expected to be completed by September this year, will enable the government to have access to funds available under the precautionary facility.
The IMF said it allowed additional time after the Kenyan government committed to implement key policies that will have significant impact on the economy, including reducing the fiscal deficit and substantially modifying interest controls.
IMF is pushing Kenya to reduce the fiscal deficit to 7.2 per cent of GDP in the 2017/18 financial year and further to 5.7 per cent in 2018/19, from 8.8 per cent in 2016/17.
For this to happen, however, the country must increase revenue collection and contain spending.
The IMF is also pushing Nairobi to abolish the interest rate capping law which was introduced in 2016 and which is being blamed for a slowdown in credit to the private sector and sharp rise in non-performing loans by banks.
As of August 2017, private sector credit growth stood at a paltry 1.6 per cent of GDP, its lowest in over a decade and down from 25 per cent in mid-2014.
“Kenya should review the interest rate controls introduced in September 2016 with a view to abolishing them or substantially modifying them,” said IMF.