Treasury seeks Sh70bn IMF loan to stem external shocks

Kenya has reached out to the International Monetary Fund (IMF) for a loan of about Sh70 billion (US$750 million), the Sunday Nation has established.
Finance Secretary Henry Rotich and Central Bank of Kenya Governor Njuguna Ndung’u have written to IMF managing director Christine Lagarde stating that Kenya’s economy is vulnerable to external factors and investors perceive it as risky.

READ : KENYA SECURES IMF FINANCING FOR SHILLING STABILISATION

“While reforms and investments are underway, our economy remains vulnerable to exogenous shocks. Kenya’s growing financial integration in global markets, while creating new financing opportunities, has increased vulnerabilities to shifts in investors’ risk perception.

“The incidents of security threats and international terrorism affecting our country, and the increasing frequency of weather-related shocks, represent additional challenges,” says the letter seen by the Sunday Nation.

Mr Rotich Saturday confirmed that Kenya is seeking an IMF loan that would act as a shock absorber for the country, if needed.

“This is a precautionary facility in the event of external shocks. It a sort of insurance package in case we have a crisis that requires funding,” said Mr Rotich.

He said the IMF board would sit on February 2 to consider the request. “We have asked for between US$ 700 million and US$750 million. We have agreed on everything internally.  The board will now determine what to give us. I would not want to pre-empt their talks,” Mr Rotich said in a cellphone conversation.

DEBT CEILING RAISED

The revelations come after Parliament raised the debt ceiling from Sh1.2 trillion to Sh2.5 trillion, allowing the government to borrow due to what the Majority Leader in Parliament claimed was the financing of projects like the standard gauge railway (SGR), Lapsset, geothermal power generation, and the one-million acre Galana irrigation scheme.

Sources at the Treasury said the document, which is before the IMF board, would be discussed and adopted next month. However, the IMF board issues certain conditions for such loans.

Kenyan’s experience with IMF conditions during President Moi’s administration in the 1980s and 1990s included retrenchment in the Civil Service. This later extended to the private sector.

Mr Mwai Kibaki, who took over from President Moi  in 2003, weaned the country off the majority of  IMF and World Bank loans as he rallied Kenyans to pay taxes with slogans like Kulipa ushuru ni kujitegemea (Pay taxes, be self-reliant).

According to the letter, the government says it is determined to address the vulnerabilities “to support sustained implementation of our wide-ranging reforms and mitigate the impact of possible exogenous shocks.”

“We request a blended Stand-By Arrangement (SBA) and Stand-By Credit Facility (SCF) with total access of SDR over the next 12 months. We intend to treat the SBA-SCF arrangement as precautionary; and we do not intend to draw under this arrangement unless extra exogenous shocks generate an actual balance of payments financing need,” said Mr Rotich and Prof Ndung’u.

The letter of intent is accompanied by a memorandum of economic and financial policies the government has put in place. “We believe the policies set out in the attached memorandum will enable us to achieve our programme objectives. However, we will take any further measures that may become necessary for this purpose,” say the two.

They pledge to consult with IMF on the adoption of the measures and in the event of any revision of the policies. “We will provide such information as IMF may request in connection with the progress in implementing our economic and financial policies,” states the document.

The memorandum has 22 points, ranging from Kenya’s recent economic development outlook, fiscal policy, monetary policy to ease of doing business and data quality.

According to the memo, the economy has expanded by 5.8 per cent in the second quarter of 2014, driven by rising private and public investments.