(Bloomberg) -- Kenya asked the International Monetary Fund for a six-month extension to a $1.5-billion standby facility to allow more time to complete delayed reviews of an IMF-supported program.
The government committed to reducing its fiscal deficit and “substantially modifying” controls on commercial interest rates to achieve the objectives of the program, the Washington-based lender said in an emailed statement. The request for a six-month extension of the precautionary financing will be presented to the IMF board before it expires on March 13, it said.
“Outstanding program reviews could be completed by September 2018,” the IMF said.
The IMF withdrew access to the standby facility in June after the government failed to meet budget-deficit targets, citing unplanned expenditure to mitigate a drought and finance protracted elections. The loan comprised a $990 million arrangement repayable with interest over five years, and a $495 million, interest-free credit repayable over eight years. The funds, approved by the IMF in March 2016, were accessible to Kenya if it faced “exogenous shocks” that led to a balance-of-payments crisis.
The central bank’s Monetary Policy Committee has referred to the availability of the standby facility in its past four meetings, saying the funds “continue to provide an adequate buffer against short-term shocks in the foreign-exchange market” in its latest communication in January. It is scheduled to meet next on March 19.
“Most of the time last year was taken up by elections and that is why we did not complete the reviews,” Treasury Secretary Henry Rotich told reporters Thursday in the capital, Nairobi. “The IMF came last week and we have agreed to extend for a further six months to complete the reviews, and then after that we will decide if we will get a new program or extend the facility further.”
The IMF loan agreement required the country to narrow the budget deficit to 3.7 percent of gross domestic product in the 2018-19 budget year. Kenya projects a budget deficit equivalent to 7.2 percent of gross domestic product in the fiscal year through June and plans to reduce it further to 5.6 percent in the following year, the IMF said.
The Treasury is preparing a supplementary budget that’ll reduce this fiscal year’s budget as revenue collection falls below the target, Rotich said. The government will also reduce cash disbursements to counties by as much as 17 billion shillings as part of its belt-tightening.
“Austerity measures cut across government, be it national and county,” Rotich said.
The IMF has urged Kenya to abolish or modify interest-rate controls introduced in September 2016 to boost access to credit by businesses and households. Growth in credit to the private sector weakened to the slowest pace in more than a decade after the caps were introduced.
“The controls have contributed to slow overall credit growth to the private sector, and lower access to credit by small- and medium-sized enterprises and individuals,” the IMF said. “In addition, interest-rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.”
Kenya’s economic growth rate could accelerate to 5.5 percent in 2018 after slowing down to 4.8 percent in the previous year, the IMF estimated.
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