Kenya Treasury Won't Renew $1.5 Billion IMF Standby Facility
(Bloomberg) -- Kenya’s Treasury will allow a $1.5-billion International Monetary Fund standby loan to expire and is deciding whether to arrange a new facility, Treasury Secretary Henry Rotich said.
The funding that’s been in place since March 2016 has been available to protect Kenya’s economy from exogenous shocks, and served as an assurance to investors in the country’s financial assets. The program was scheduled to expire in March, but was extended by six months to allow for program reviews delayed by last year’s protracted elections. It’s scheduled to lapse on Thursday.
“There’s nothing unique about a program ending,” Rotich told reporters Thursday in the capital, Nairobi. “We had a successful two-year program, which is now coming to an end and we will continue to engage with the fund with a view to enter into a new arrangement or relationship. We can still engage and get back into it if we think it is necessary.”
The shilling dropped as much as 0.3 percent to 101.21 per dollar during the day, its weakest level in more than three months. Yields on the country’s benchmark 10-year Eurobonds fell 2 basis point to 7.662 percent. The FTSE NSE Kenya 25-share Index declined for a seventh day to 200.23, the longest losing streak since October 2017.
While Kenya isn’t facing a balance of payments crisis, “the credibility that is attached to an IMF approval or acknowledgment should not be discounted,” Jibran Qureishi, regional economist for Stanbic Holdings Ltd. in Nairobi, said in an emailed research note last month.
The decision not to renew the IMF loan may dent investor perceptions of the country because the environment for emerging and frontier economies has deteriorated, said independent analyst Aly-Khan Satchu. The country’s reserves dropped to $8.56 billion last week from a record $9.5 billion in April, according to the central bank.
“You are throwing over an insurance policy just when you need it most,” Satchu said. “The macho talk is poorly advised. We should have been prudent and not cavalier at this juncture.”
The IMF froze access to the facility in June 2017 after the government failed to meet fiscal-deficit targets following unplanned expenditure to mitigate the impact of a drought and finance the elections.
“We should be relying less and less on IMF facilities especially because we have come of age in macroeconomic management and we are able to go to the international capital markets with or without the fund,” Rotich said.
Kenya, which didn’t draw down on the standby loan, has narrowed its current-account deficit to below 6 percent and is targeting a budget shortfall of 5.9 percent of gross domestic product in the current fiscal year through June 2019, compared with 7.2 percent last year.
Analysts at companies including Moody’s Investors Service and BMI Research have expressed concern that Kenya is living beyond its means with debt as a ratio of gross domestic product expected to reach 60 percent in the current fiscal year. Total debt increased to 5.04 trillion shillings ($49.8 billion) by June, according to Treasury data.
Kenya’s debt is sustainable at 49 percent of net present value and the Treasury intends to keep it below 50 percent, Treasury Principal Secretary Kamau Thugge said earlier on Thursday. The IMF recommended the government not exceed a threshold of 74 percent of net present value, he said.
©2018 Bloomberg L.P.