Kenya has embarked on plans to exit a government to government (G2G) fuel deal that it signed last year with Saudi Arabia and the UAE because the move has failed to ease pressure on the dollar.
In a report by International Monetary Fund (IMF), the G2G deal was to run for 9 months, but the window has been extended for 12 more months to December 2024, a move that will offer the government a chance to negotiate favourable terms.
“The government intends to exit the oil import arrangement, as we are cognizant of the distortions it has created in the FX market, the accompanying increase in rollover risk of the private sector financing facilities supporting it and remain committed to private market solutions in the energy market,” IMF said, adding that the oil import scheme is still on despite potential risks, including forex market segmentation.
While the deal was expected to ease forex pressure, continued depreciation of the shilling and forex shortages, forex market dysfunction, as well as the narrowing interest differential between some types of the shilling and US$ deposits likely have contributed to its ineffectiveness.
“Future risks from Public Private Partnership projects should be contained through integration into the budgetary process and inclusion of a limit on their total stock,” IM added.
