The International Monetary Fund (IMF) said on Friday it would continue to support its reform efforts in Kenya although a stand-by $989.8 million loan deal to the country had expired.
IMF representative Jan Mikkelsen said in Nairobi that the support was because Kenya’s external position was strong.
Kenya had secured a six-month extension in March on the $989.8 million arrangement, which expires on Sept. 15.
However, the IMF set conditions for a further extension, including the repeal of a cap on commercial lending interest rates which was imposed in 2016, a move that parliament rejected in a finance bill in August.
President Uhuru Kenyatta sent the bill back to parliament on Thursday night, but what happens next regarding the rate cap is not yet clear.
Mikkelsen confirmed what the government said on Thursday: that the deal was over.
“The second review of the IMF-supported programme has not been completed, and the programme will expire today,” he told Reuters.
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“It should be stressed that Kenya’s external position remains strong and foreign exchange reserves are at a very comfortable level.”
Foreign exchange reserves stood at $8.56 billion at the end of last week, equivalent to 5.71 months’ worth of Kenyan imports, central bank data showed.
The bank is required by law to hold reserves worth a minimum of four months of import cover.
The central bank expected the current account deficit to shrink to 5.4 per cent of gross domestic product at the end of this year, from 5.8 per cent in June, Governor Patrick Njoroge said in July.
Kenyan officials have played down the significance of the expiry of the deal, which was agreed in 2016 to help cushion the economy in case of unforeseen external shocks that could upset the balance of payments.
However, Finance Minister Henry Rotich said on Thursday that talks with the Washington-based fund would now focus on the next type of facility Kenya could secure.
“The IMF will continue to support Kenya’s reform efforts through policy advice and capacity development,” Mikkelsen said, without giving more details.
Kamau Thugge, the principal secretary at the finance ministry, had said on Thursday that the expiry would not hurt the economy.
Rotich tried to repeal the rate cap in his June budget, but parliament voted to keep the upper limit while getting rid of a minimum deposit rate it had previously imposed.
The cap was aimed at helping small traders borrow at affordable rates, but has had the opposite effect, with banks saying they cannot price risk to small and medium enterprises (SMEs) properly while the cap is in place.
As a result, lending to the private sector fell from 9.3 per cent in 2016 to 2.4 percent last year.
Kenyatta is due to address the nation on Friday, after rejecting the finance bill, which also sought to postpone a widely unpopular tax on fuel.
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