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IMF to engage with Kenya on existing $1.5 bln credit…

By Duncan Miriri

NAIROBI, Nov 30 (Reuters) – The International Monetary Fund will hold talks with Kenya on the future of its $1.5 billion standby credit facility that is set to expire in March, the fund’s representative in Nairobi said.

The East African nation secured the facility three years ago as an extra cushion in case of unforeseen shocks to the economy. It has not yet tapped the credit facility.

“Discussions about the current programme and what will follow after the expiration in March are expected to begin soon, with the new government taking office,” Jan Mikkelsen told Reuters.

“The authorities have indicated that they are interested to continue a programme relationship with the IMF.”

President Uhuru Kenyatta was sworn in for a second and final five-year term on Tuesday after the election season was prolonged by three months after the Supreme Court nullified the initial vote.

He is due to name his new government in the coming days, and, while the opposition is still pledging its own rival inauguration next month after an election it boycotted, the appointment of the team will allow the IMF talks to continue.

The violence that accompanied the repeat election last month and the protracted uncertainty surrounding it has hurt the economy, forcing the government to cut its growth forecast for this year to 5.1 percent from the initial 5.9 percent.

“Economic growth this year could still reach 5 percent though risks are on the downside due to expected weakness in several sectors in the second half of the year,” Mikkelsen said.

The non-agricultural sectors were the ones that were most hurt by the political uncertainty in the second half of the year, said the IMF official, without giving more details.

Mikkelsen said there were “significant economic challenges ahead including containing fiscal risks and reducing public debt vulnerabilities”.

Last month, the government extended a $750 million syndicated loan by six months, exposing the risks posed by growing public debt, which climbed to 55 percent of GDP from 42 percent in Kenyatta’s first term.

There was also need to address stagnating credit growth to the private sector.

Private sector credit grew 2.0 percent in the year to October from 1.7 percent in the previous month, the central bank said. The growth of credit has been curbed by a government cap on commercial lending rates imposed last year.

Mikkelsen said the government could boost revenue collection, reduce expenditure and remove the rate cap to put the economy on a more sustainable footing.

“The economic growth outlook is positive provided there is political stability and the mentioned economic policy challenges are addressed,” he said.

(Editing by Alison Williams)

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