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Kenya eyes additional finance as it joins Asia Infrastructure Investment Bank

Published

2 weeks ago

September 3, 2024

Kenya has joined the China-led Asia Infrastructure Investment Bank (AIIB), an organization created to compete with the US-backed IMF and World Bank, to secure more extensive long-term funding.

President William Ruto announced this on Tuesday following his meeting with Chairman Jin Liqun of the multilateral lender in Beijing. As a result of the Finance Bill’s withdrawal, Kenya is now in a poorer financial situation and is looking for long-term loans.

“The membership will enable Kenya to access concessional funding for infrastructure, climate change efforts, connectivity, regional cooperation and technology-enabled projects and programmes,” Dr Ruto said.

The lender says on its website that it does “not offer financing under concessional terms”, but has a Project Preparation Special Fund, which gives “grants for project preparation to finance the preparation of projects to be financed by AIIB in eligible member countries”.

In addition to infrastructure, the lender offers loans for other profitable industries like water, energy, transportation, ICT, and urban development.

In a time when international credit institutions have increased Kenya’s risk of defaulting on sovereign borrowing, the development financier, established in January 2016, would provide the country with an alternative to raise less expensive financing.

As “part of the administration’s agenda on enhancing regional cooperation and connectivity through the green economy,” the Cabinet authorised Kenya’s membership in the AIIB in January.

China, the second-biggest economy in the world, founded the AIIB to compete with the US-dominated World Bank and IMF after the US declined to provide China greater sway over these Washington-based international lenders.

The Washington Consensus is a set of policies intended to, among other things, promote the use of private markets, protect the environment, protect human and workers’ rights, and foster non-corruption in government. It is a set of conditions under which the World Bank and International Monetary Fund lend to developing nations like Kenya.

The African Development Bank, the World Bank, and the IMF are further development financing organisations that Kenya is a member of.

With 109 member nations and a capital base of $100 billion (about Ksh13 trillion), the Beijing-based lender is the second-largest multilateral development bank in the world, trailing only the World Bank Group.

Following the collapse of the 2024 tax bill, Kenya increased its borrowing target for the current fiscal year to Sh1 trillion, leaving a projected Ksh344.3 billion hole in the budget. At the same time, the country joined the AIIB.

Dr. Ruto withdrew Finance Bill 2024 in late June in response to persistent youth-led protests against the increased tax measures supported by the IMF, high living expenses, poor governance, and corruption.

Investors are becoming nervous about the nation’s financial stability as a result of the tax bill’s decline, which has slowed down the fiscal consolidation process in the nation. Fiscal consolidation depends more on new and higher taxes than on spending cuts.

As a result, the credit rating of the nation has been reduced by three prominent international credit rating agencies, namely Moody’s, Fitch, and S&P. This has increased the cost of the nation’s access to capital in the form of Eurobonds on international commercial markets.

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Nigeria’s central bank issues fresh guidelines for ‘Ways and Means’ to govt

Published

10 hours ago

September 18, 2024

Ifeoluwa Dada

The Central Bank of Nigeria (CBN) has issued new guidelines on Ways and Means which limit Ways and Means Advances to the federal government to 5% of the previous year’s revenue collection.

The apex bank made the position known in its fiscal year 2024-2025 monetary, credit, international trade, and exchange policy guidelines.

“Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue. Such advances shall be liquidated as soon as possible and shall in any event be repayable at the end of the year in which it was granted,” it said.

The Treasury Single Consideration (TSA) system requires these advances to take into consideration Ministries, Departments, and Agencies (MDAs) sub-accounts, which are linked to the Consolidated Revenue Fund.

The federal government’s consolidated cash situation will be more precisely reported, improving public financial management openness and resource availability. The CBN also stated that Ways and Means Advances must be repaid by the end of the fiscal year they were awarded, encouraging short-term borrowing.

In the Nigerian context, “ways and means” refers to the Federal Government’s ability to borrow money from the Central Bank of Nigeria (CBN). This means that the government may use “ways and means” to meet short-term needs or emergencies, which is why the CBN is referred to as the “lender of last resort.”

Over the past seven years, the facility had grown 2,900% to an extraordinary N23.7 trillion by 2023. This fast surge, which exceeded legal restrictions, increased inflation and Nigeria’s debt.

The CBN Act allows the bank to grant temporary advances to the federal government for budget revenue deficits at a rate deemed appropriate, but the total amount of such advances “shall not at any time exceed 5% of the previous year’s actual revenue of the Federal Government.”

In addition, it stipulates that “All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

The Senate and House recently enacted a bill to increase the CBN’s federal Ways and Means borrowing ceiling. The upper chamber of Nigeria’s legislature boosted the central bank’s loan capacity to the federal government from 5% to 10% of annual income.

Yemi Cardoso, CBN governor, announced earlier this year that the bank would stop making Ways and Means advances to the federal government until existing loans were returned. He said this is one of the bank’s key strategies to handle the country’s economic issues.

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Kenya, IMF discuss economic and fiscal issues

Published

15 hours ago

September 18, 2024

Ifeoluwa Dada

The International Monetary Fund (IMF) said on Tuesday that it had had productive discussions with Kenya’s government on its economic and fiscal goals after widespread protests prompted it to shelve tax rises.

In June, President William Ruto abandoned this year’s finance bill, leaving the deeply indebted government with a larger budget deficit, unpaid payments, and a delay in IMF funding.

“We remain fully committed to supporting the authorities in their efforts to identify a set of policies that could support the completion of the reviews under the ongoing program as soon as feasible,” the IMF said in a statement.

Kenya signed a four-year IMF loan in 2021 and another for climate change measures in May 2023, totalling $3.6 billion. The country secured a staff-level agreement with the IMF on its seventh review in June, but the protest and finance bill withdrawal delayed the executive board’s sign-off and payout.

Public debt helps development. Governments utilise it to fund spending, protect and invest in their citizens, and improve their futures. However, too quick governmental debt growth can be a burden. The developing world which Africa forms core is experiencing this.

Kenya’s government debt was 70.10% of GDP in 2023. Kenya’s government debt to GDP averaged 56.36% from 1998 to 2023, peaking at 78.30% in 2000 and falling to 38.20% in 2012.