IMF sets Treasury tough reporting guidelines

The Central Bank of Kenya. CBK will be required to provide summary of data on net domestic bank financing, including net commercial bank credit and net CBK credit to the central government. FILE 

By GEOFFREY IRUNGU

In Summary

• The guidelines are contained in a document dated March 28 and released on Thursday by the fund.
• Among the conditions is that CBK will endeavour to keep the forex reserves at four months cover for imports.
• Besides forex, the CBK and the Treasury will report on issues such as debt and interest paid on it, disbursement of non-concessional project loans, currency in circulation, among others.

The International Monetary Fund (IMF) has set tight reporting guidelines for the Treasury as part of conditionalities for access to a Sh64 billion ($760 million) foreign exchange support loan.

The guidelines are contained in a document dated March 28 and released on Thursday by the fund. The document is signed by outgoing Finance minister Njeru Githae and Central Bank of Kenya (CBK) governor Njuguna Ndung’u.

The IMF last month announced the release of a tranche of Sh9.2 billion ($109 million) as part of the loan to shore up Kenya’s foreign exchange reserves.

Among the conditions is that CBK will endeavour to keep the forex reserves at four months cover for imports. The reserves were below the threshold for several months before reaching the level mid last month.

“After a period of sustained accumulation of international reserves, the central bank intervened in the foreign exchange market to contain depreciation pressures associated with some market jitters as elections approached.

“Once surrounding uncertainties subside, international reserves are expected to rise to the programme target of four months of imports towards the end of 2014,” said the IMF.

From the Letter of Intent, of the 23 items that have to be reported on, 15 will be provided to the IMF on a monthly basis while the rest will be on a quarterly basis. While the Ministry of Finance (now called the National Treasury) will report on 13 items specified in the agreement, CBK will report on 13 aspects.

Besides forex, the CBK and the Treasury will report on issues such as debt and interest paid on it, disbursement of non-concessional project loans, currency in circulation, among others.

For 15 of the items, reporting will be within 15 days after the end of the month and this will relate to the performance of the specified variable for that month.

CBK will be required to provide summary of data on net domestic bank financing, including net commercial bank credit and net CBK credit to the central government. The aim is to monitor debt accumulation such that it does not endanger the economy and ensures repayment of external and domestic debt.

CBK lending to the central government is also critical due to the risk of financing spending by printing money which in turn could cause inflation.

The Government will also be under pressure to pay domestic suppliers within two months because it must report any outstanding arrears owed to private parties.

“Central government arrears accumulation to domestic private parties and public enterprises outstanding for 60 days or longer (are to be reported) monthly within 15 days after the end of the month (by) the Ministry of Finance,” said the Letter of Intent.

When the government incurs debt, such as the planned sovereign bond, it is expected to report about it on a monthly basis and not more than 15 days after the end of such a month.

“We remain fully committed to our floating exchange rate regime and we will only intervene in the foreign exchange market to accumulate international reserves and to smooth out temporary excessive exchange rate volatility,” said CBK.