IMF stopped standby facility earlier...

NAIROBI - Earlier the International Monetary Fund said it stopped Kenya’s access to a $1.5 billion standby credit facility last Ju ne after failing to agree with the government on a UedXctiRn RI tKe fiscal deficit

The two-year precautionary facility, was put in place in case of unforeseen ext ernal shocks that could put pressure on Kenya’s balance of payments.

The East African economy had not tapped the facility, which was preceded by a smaller standby one-year credit line in 2015, as foreign exc hange reserves held by the central bank soared to record highs.

“The programme has not been discontinued but access was lost in mid-June because a review had not been completed,” Jan Mikkelsen, IMF representative in Kenya, told Reuters.

“There was no agreement on the fiscal adMustment at the time and then I do believe the lengthy election period (later in the year) made it difficult to haYe a reYiew and complete that in the period that followed.”

The facility has however still been listed as current every week since then on the IMF’s website, including last week, prompting criticism from campaigners for poor countries’ debt to be written off.

“If access was really lost in June, then the IMF has not been clear about this,” said Tim Jones, Solic\ officer at the -ubilee 'ebt Campaign in London. “Increased transparency is needed not just from governments but from lenders as well, including the IMF.”

The Kenyan government did not respond to reque sts by Reuters for comment. It has published a Slan to lower its fiscal deficit to 7 Sercent of *'3 at the end of this fiscal \ear in -une from 8.9 percent in 2016/ 17, and to less than 5 percent in three years’ time.

Mikkelsen said an IMF team was in Kenya for talks on a Kenyan reque st for a new standby credit facility. He did not comment on the JoYernment¶s fiscal deficit reduction Slan

“We have just started discussions,” he said. “I’m hopeful we will get an agreement.”

The IMF wanted to see “substantial fiscal consolidation´ to lower the deficit and Sut the country’s debt onto a “sustainable path”.

Kenya’s total debt has risen to about 50 percent of GDP, from 42 percent in 2013, as it borrowed locally and abroad to build infrastructure like a new railway line from Nairobi to the port of Mombasa.

When Kenya secured the precautionar\ facilit\ ,0) officials said it was recognition of the country’s stable economic fundamentals, as that type of facility is usually reserved for more developed emerging economies.

But investor worries have Jrown due to the JaSinJ fiscal deficit and sluJJish SriYate sector credit growth, after the government capped lending rates at 14pe rcent in 2016.

“The interest rate controls should either be eliminated or siJnificantl\ modified to allow banks to price risks properly and thereby promote an increase in credit to the private sector,” Mikkelsen said.

+e said a reduction of the fiscal deficit and the elimination of the cap on commercial lending rates were key to a new agreement between Kenya and the fund.