Kenya to receive Sh 131 billion new IMF Financing
Kenya is poised to receive a substantial financial injection of Sh131 billion ($1 billion) from the International Monetary Fund (IMF) in June, marking the conclusion of the seventh review of its multi-year program with the international lender.
This anticipated disbursement, contingent upon staff-level agreements and approval from the IMF executive board, is anticipated to be the largest allocation yet from the program initiated in 2021.
Kamau Thugge, Governor of the Central Bank of Kenya (CBK), expressed confidence in reaching an agreement with the visiting IMF team, with the executive board's meeting scheduled for early June. Thugge stated that following the executive board's meeting, the disbursement of at least $1 billion from the IMF is expected.
In May 2024, the IMF had originally planned to disburse $709.7 million in special drawing rights to Kenya, equating to approximately $936.83 million (Sh122.8 billion), under various funds including the extended fund facility (EFF), the extended credit facility (ECF), and the resilience and sustainability fund (RSF). Since February 2021 through January 2024, the IMF has already disbursed a cumulative total of Sh341 billion ($2.6 billion) from the ECF/EFF arrangements.
The forthcoming financial support from the IMF is expected to complement fresh funding from the World Bank's development policy operations (DPO), a facility aimed at fulfilling emerging development resource needs for countries.
Kenya anticipates accessing approximately Sh157.3 billion ($1.2 billion) from this source. However, the anticipated funding from the World Bank is slightly lower than the previously projected disbursement of Sh196.7 billion.
The Central Bank of Kenya notes that the World Bank is set to marginally reduce its support under the DPO following Kenya's successful issuance of a new Eurobond, which will be used to settle a portion of its maturing debut sovereign bond from 2014.
BANKING
CBK retains the Benchmark Lending rate at 13%
The Central Bank of Kenya (CBK) has spared Kenyans from expensive loans following retention of its benchmark lending at 13 per cent, citing positive progress in cost of living and exchange rate in the Kenyan market.
The MPC noted that its previous measures have lowered inflation, addressed the exchange rate pressures, and anchored inflationary expectations.
The Committee further noted that overall inflation is expected to continue declining in the near term, supported by lower food and fuel prices, and pass-through effects of the recent exchange rate appreciation.
Therefore, the MPC concluded that the current monetary policy stance will ensure that overall inflation continues to decline towards the 5.0 percent mid-point of the target range, and thus decided to retain the Central Bank Rate (CBR) at 13.00 percent.
“The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate. The Committee will meet again in June 2024,
COMPETITION
Competition Authority of Kenya safeguards 14,000 jobs in flower company mergers
The Competition Authority of Kenya (CAK) disclosed that conditional approvals granted for the merger of four flower firms played a crucial role in safeguarding approximately 14,000 jobs. This revelation brings a sigh of relief to numerous households reliant on these agricultural businesses for their livelihoods, directly or indirectly. Amid a surge in merger activities, the CAK emphasized its commitment to protecting jobs by invoking public interest clauses in approval terms.
According to the CAK's annual report, there was a noticeable uptick in merger activities within the flower industry, with significant capital injections facilitating the preservation of thousands of jobs for workers in the sector. Among the prominent merger transactions recorded during this period were the acquisition of Naivasha-based Bigot Flower Kenya by the United Kingdom investment holdings company Flamingo Horticulture Investment Limited, and the takeover of Karuturi Limited by Shalimar Flowers Kenya Limited.
Furthermore, other noteworthy merger deals included the acquisition of Dutch Flower Group Phima Flowers by Marcoz Holdings B.V., with Marcoz Holdings directly controlling two companies operating in Kenya. One of these specializes in logistics solutions for transporting fresh-cut flowers, herbs, cuttings, produce, and fruits internationally, while the other consolidates flowers from Kenyan growers for global shipment. The CAK, guided by the Competition Act, stressed its mandate to consider not only the potential market dominance of the buyer but also the impact on employment when making merger approval decisions.
BANKING
Bad Bank loans hit record 15.5 pc as CBK pauses rate increase
Non-performing loans (NPLs) have surged to a new multi-decade peak, reaching 15.5 percent of the total lending within the banking industry as growth in private sector credit slows down. According to data from the Central Bank of Kenya (CBK), the industry's ratio of gross NPLs reached its highest level in the 12 months leading up to February 2024, escalating from 14.8 percent in December of the previous year to mark the highest rate since mid-2006.
The significant increase in bad loans can be attributed to the rise in interest rates by both the central bank and commercial banks. The former has raised the benchmark lending rate to counter inflation and address a weakening currency.
The CBK indicated on Wednesday that the uptick in NPLs was observed across various sectors including real estate, trade, personal and household, energy and water, and building and construction. This announcement came as the CBK decided to maintain the benchmark interest rate at 13 percent, pausing after two consecutive significant rate hikes in February and December.
Commercial banks have recently adjusted interest rates on loan facilities upward, reflecting the tighter monetary policy stance taken by the CBK.
CORPORATE
Kenya Airways seek extension of waiver of Competition rules
Kenya Airways (KQ) has requested an extension of a special exemption granted two years ago, permitting the creation and sharing of revenues on routes operated in a joint venture agreement with Tanzania’s Precision Air.
According to the latest report from the Competition Authority of Kenya (CAK) for the financial year ending June 2023, the application is currently under review.
CAK stated, "The airlines have applied for exemptions regarding various aspects of their services, including reciprocal code sharing, alignment and coordination of management activities, and pricing of ticket fares."
In 2018, the two airlines sought an exemption from CAK due to their joint venture requiring the sharing of sensitive information, which contradicted provisions of section 21(3) of the Competition Act. This exemption allowed them to engage in reciprocal code sharing on routes operated by both airlines.
WHAT YOU MUST HAVE MISSED
KPMG fails to stop suit by a former Kenyan Partner
The High court dismissed a plea seeking to stop the hearing of a case against kpmg International by former CEO who is seeking millions for alleged racial discrimination following his sacking in 2019. Justice Visram declined to strike down the case holding that he had no powers to suspend a ruling by a fellow judge.
The government paid Ksh 28 billion in six months to cushion buyers from high oil prices
The government paid oil marketing companies Sh27.84 billion in the six months to December 2023 from the stabilisation kitty to cushion consumers from high prices, the Controller of Budget Margaret Nyakang’o has disclosed.
This came after the government ended fuel subsidies in line with commitments made to the International Monetary Fund (IMF), in favour of stabilisation.
“In the first six months of the financial year 2023/24, the total subsidies reported by MDAs (Ministries, Departments and Agencies) amounted to Sh27.84 billion, representing 3.7 percent of the gross recurrent expenditure,” Dr Nyakang’o said in a presentation to the National Assembly’s Budget and Appropriations Committee (BAC) on budget implementation for the first six months of the 2023/24 financial year.
United States traders raise quality checks concerns for Kenya imports
US traders have raised concerns over Kenya’s quality and safety checks on imported products, claiming the certification falls short of global best practices, and is not entirely above board.
The Office of United States Trade Representative (USTR) Washington says in a review that the requirements Kenya applies in inspecting and certifying imports into the country “deviate from international standards”, suggesting that the process presents a technical trade barrier.
The Kenya Bureau of Standards (Kebs) requires mandatory checks of most goods at the country of origin under the Pre-Export Verification of Conformity (PVoC) program. Inspections are conducted by Kebs agents in source markets to ensure the goods comply with Kenya’s standards and regulations before they are exported. The PVoC rules, however, exempt some goods imports such as raw materials, machines, and spare parts shipped in by registered manufacturers, products with diamond marks of quality certified by Kebs, and goods approved by the Cabinet Secretary for Trade. The goods exempted from PVoC are inspected by Kebs at the port of entry.
The prevailing rules enforced through Standards (Verification of Conformity to Standards and Other Applicable Regulations of Imports) Regulations of 2019 require importers to obtain a Certificate of Conformity (CoC) from Kebs PVoC inspection agent in the country of origin.