An IMF delegation is set to visit Nairobi this month to resume negotiations over the $1.5 billion standby facility intended to cushion the Kenyan shilling from major economic shocks.
Collapse of negotiations following the exit of Finance Cabinet Secretary Henry Rotich on corruption charges has seen Kenya go for more than a year without the precautionary facility.
The IMF delegation is expected to discuss economic and financial policies that Kenya is supposed to put in place to unlock the standby loan.
“Sometime this quarter, end of February early March we will meet the IMF mission to continue with negotiations,” said the Central Bank of Kenya (CBK) governor Dr Patrick Njoroge.
A standby facility acts as insurance to cushion the country, particularly the shilling, from external economic shocks.
Dr Njoroge set the tone for the negotiations by maintaining that Kenya will not be bullied into accepting any conditions.
The IMF has been critical of the country’s total debt standing, which it reckons is way above government official figures if public guarantees and parastatal debts are included.
“We know what we are doing in managing the economy and we do not need anybody to come and tell us what to do,” said Dr Njoroge at a media briefing following Monday’s Monetary Policy Committee (MPC) meeting.
He added that although Kenya requires the insurance, the country is not under any pressure or in a rush to secure it. The facility is important in cushioning the country against any shocks to the balance of payments and the stability of the shilling, even though Kenya is anticipating less pain this year with easing of the external current account deficit, stable inflation and less volatile shilling.
“For us it is beneficial to have insurance because the world is a risky place. We need insurance for extreme events as it gives as room to manoeuvre in setting policy. Hopefully we will get the insurance,” said Dr Njoroge.
The two-year standby loan facility expired in September 2018.
Kenya was unable to secure a renewal last year after an IMF delegation cancelled a trip to the country following the suspension of National Treasury’s two senior-most officials over corruption allegations. Mr Rotich and his principal secretary Kamau Thugge were charged with corruption offences.
Although Kenya has repealed the interest rates capping law that was one of the conditions by IMF for approval of the facility, the country is grappling with fiscal consolidation conditions that are proving difficult to implement despite repeated assurance.
DRAFT 2020 BUDGET
“To achieve consolidation, the government will continue to restrict growth in recurrent spending and double its effort in domestic resource mobilisation,” states the Draft 2020 Budget Policy Statement.
Part of the IMF conditions include hiking of taxes to grow revenues that have been underperforming, forcing Kenya on a borrowing binge that has pushed debt to the brink of unsustainability.
The IMF has also been pushing for the taming of wastage through expenditure reforms and prudent allocation of resources, with priorities given to social programmes like education and health.
“The design of tax and expenditure reforms that support a growth-friendly fiscal consolidation would be important to anchor a new fund-supported program,” said Benedict Clements, IMF head of mission after concluding a visit to Kenya in November last year.
In mid-January, the IMF released the Fiscal Transparency Evaluation Update in which it accused Treasury mandarins under Mr Rotich of concealing the true state of Kenya’s public debt by excluding government guarantees and massive loans procured by public entities.
The report, for instance, shows that as at June 2018, the total outstanding guaranteed debt stood at $1.3 billion, representing 1.7 per cent of gross domestic product (GDP). Of the amount, $18.5 million was non-performing.
It added that while the government has other explicit and implicit guarantees that are not quantified or disclosed, for instance guarantees to the National Social Security Fund, it is difficult to tell the full stock of guarantees issued by the government including the inherent risks.
The report paints a picture that Kenya’s debt, which had ballooned to $60.6 billion as at December 2019, is much higher if guarantees and parastatal debts are included.
In reality, Kenya’s public debt has exceeded the $88 billion ceiling approved by Parliament last year. “The stock of Kenya’s public sector liabilities is high compared to other emerging markets and low-income developing economies and creates potential fiscal risks,” stated the report. It added that public sector assets and liabilities are estimated at 116 per cent and 121 per cent of GDP respectively, an increase of about 30 per cent since 2014.
Dr Njoroge, however, dismissed IMF’s concerns stating that Kenya is on the right path in terms of consolidation with new Treasury Cabinet Secretary Ukur Yatani anchoring a solid plan.
“There looks to be a solid plan on consolidation, not abracadabra like before,” he noted.
The Governor added the fact that Kenya’s current account deficit is on the decline, while tax revenues are on a growth trajectory, is proof enough the country is on the right track.
TWO OPINIONS, SAME COIN
In mid-January, the IMF released the Fiscal Transparency Evaluation Update in which it accused Treasury mandarins under Mr Henry Rotich of concealing the true state of Kenya’s public debt by excluding government guarantees and massive loans procured by public entities. Essentially, the IMF report paints a picture that Kenya’s debt, which had ballooned to $60.6 billion as at December 2019, is much higher if guarantees and parastatal debts are included.
In reality, Kenya’s public debt has exceeded the $88 billion ceiling approved by Parliament last year.
"The stock of Kenya’s public sector liabilities is high compared to other emerging markets and low-income developing economies and creates potential fiscal risks," stated the report.
It added that public sector assets and liabilities are estimated at 116 per cent and 121 per cent of GDP respectively, an increase of about 30 per cent since 2014.
Last year, Kenya’s current account deficit narrowed to 4.6 per cent of GDP, down from five per cent in 2018 and is expected to remain stable at 4.7 per cent this year. On revenues, although the Kenya Revenue Authority continues to miss targets, collections are on the rise. Revenue collection to December 2019 grew by 15.9 per cent compared with the same period in 2018/19 but still fell short of target by $1.3 billion.