The Central Bank of Kenya (CBK) Governor Patrick Njoroge made a plea to the International Monetary Fund (IMF) to step up its support by giving additional resources in form of loans for emerging markets.
During the IMF Annual Meeting in Washington DC on Thursday of last week, Njoroge remarked that obtaining external commercial finance at this time would not only help economies overcome the current economic hardships, but it would also help close funding gaps brought on by recent global shocks.
“We didn’t get all of these external resources that we were to get from the markets. We would require additional inflows which would help us right away. A doubling or tripling of access is something that should be put on the table,” observed Njoroge.
According to Njoroge, Kenya has submitted the plan to the IMF but has expressed dissatisfaction with the pace of review.
By the middle of 2024, Kenya will have received Sh283.5 billion ($2.34 billion) as part of a 38-month IMF program.
According to Njoroge, Kenya has presented the proposal to the IMF even though it has been met with frustration in the speed of consideration for the same.
Kenya has been unable to access external financing from commercial sources, including issuing sovereign bonds (Eurobonds) and syndicated loans at higher interest rates.
“Financial markets have become dysfunctional. We have been shut from the capital markets as we are unable to borrow at appropriate rates,” said the Governor.
The IMF’s deputy managing director, Antoinette Sayeh, conferred in August 2022 to have reviewed guidelines for issuing loans to Kenya based on three new conditions known as structural benchmarks, which included implementation of national tax policy, scrapping fuel subsidies and a push for Kenya Power to fully bridge its fiscal gap by 2023.
This was in addition to the current 38-month Sh276 billion ($2.34 billion) loan condition deal Kenya signed in April 2021 under the special drawing rights (SDR), which is currently being settled in tranches that have transited to the current administration.
Kenya failed to issue either a Eurobond or a syndicated loan in the fiscal year that ended in June 2022, leaving a financing gap for its 2021–2022 budget.
After bilateral debts from lenders like China became expensive, Kenya turned to the IMF for concessional loans.
As a result, the institution had substantial influence over the government’s policies, praising Kenya’s economy on the one hand while simultaneously pushing for tough changes.
At financially unstable state enterprises undergoing structural reforms, the requirements associated with these loans have in the past resulted in tax increases, spending reductions, and redundancies.
In order to handle the next stage of Kenya’s COVID-19 response and lessen debt vulnerabilities, an agreement under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) was agreed in February of last year.
The third evaluation of the program, whose total expenditures to date exceed Sh146.4 billion ($1.208 billion), was concluded by the IMF in mid-July.
The price of foreign loans to Kenya is also not favourable due to the global bond market.
Treasury suspended the issuance of Eurobonds at the beginning of this year due to the exorbitant interest rates it would have to pay.
Njoroge is still requesting more and sooner disbursements from the IMF, referring to the current strategy as “drip feeding.”
As global shocks continue, Kenya has endorsed international financial institutions (IFIs) to offer urgently required external finance.
Kenya has previously accessed assistance from the World Bank Group in addition to the IMF by obtaining loans through its development policy operations (DPO) program.
Out of the Sh90.26 billion, Treasury spent 81 per cent on repaying bilateral debt in the nine months leading up to March 2022 went toward loan repayment to Chinese lenders, who have been unwilling to grant debt relief to African countries.