Kenya expects to finalise a deal with the International Monetary Fund within two months and the lender is not insisting on a removal of the interest rate cap as a precondition for a new deal, finance minister Henry Rotich said on Thursday.
The east African country is discussing a new standby credit facility with the IMF. Its previous $1.5 billion programme expired last year when the government failed to meet the Fund’s conditions for an extension, including the repeal of a cap on how much interest commercial lenders can charge.“We are looking at a similar arrangement as we had before,” Rotich told Reuters in London, where he had overseen the sale of a $2.1 billion sovereign Eurobond. “We have everything on the table … I would estimate it won’t take us more than two months.”
Rotich also said a draft of the new IMF agreement no longer made abolishing the interest rate cap a precondition and would focus on financial sector reforms instead. “This is no longer an issue,” he said. “The IMF has accepted to take up the reforms that we are doing, which deals with really attacking the root cause of why interest rates are high in the first place.” Private sector credit growth has been sluggish since the government capped commercial lending rates at four percentage points above the central bank rate in 2016.
Rotich said policymakers in Nairobi wanted to make sure the cap was not constraining credit to small and medium enterprises and that discussions were being held to either amend or abolish it altogether. Asked about borrowing plans and a possible return to capital markets in financial year 2019/2020, which begins in July, Rotich said no firm decision had been made. He added that issuing more Eurobonds was one possibility to raise funds needed, as outlined in a draft budget in early May.
“Debt servicing costs are in the region of 20% and we obviously want to stabilise that,” Rotich said, adding that he was looking to increase money raised through concessional loans and use funds raised on capital markets for infrastructure projects. Rotich said he was aiming to bring down debt servicing costs in the next few years to 12-16%.