Scrap or review interest rate cap, IMF tells state
9 months ago, 9 Mar 00:29
The IMF will next week decide on the fate of Kenya’s $1.5 billion (Sh152 billion) precautionary facility whose review was postponed last year. In a statement issued at the end of a mission to Nairobi yesterday, the IMF said the new request for an extension will be placed before its board before the facility expires on March 13. “The authorities requested for a six month extension of Stand-By Arrangement (SBA) that expires on March 13, 2018 to allow more time to complete the outstanding reviews of the IMF support programme. In support of this request, authorities have committed to policies to reduce fiscal deficit and modify interest controls,” read the statement by Benedict Clements, who headed the IMF team. It said the SBA extension request will be presented to the executive board on March 13 before its expiration and the outstanding programme reviews could be completed by September. The IMF product has been Kenya’s key component in weathering economic shocks since March 2016. Last month, IMF resident representative in Nairobi, Jan Mikkelsen, revealed two reviews of the precautionary facility that were scheduled for July and December last year could not be completed on schedule as an agreement could not be reached on stronger fiscal policies, and discussions were postponed due to the prolonged election period. This stirred public outcry, with the Treasury and Central Bank, both which had repeatedly assured Kenyans of the safety of the facility during the Monetary Policy Committees updates, accused of deceit. The mission also advised the government to review the interest rate cap that was introduced in 2016, recommending either an abolition of the controls or modification. “The controls have contributed to slow overall credit growth to the private sector and lower access to credit by SMEs and individuals. In addition, interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth,” Clements said.
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