IMF seeks tighter controls on Kenyan loans

The World Bank claims in a new study that supports the recent issuance of a KSh141 billion ($1 billion) loan to Kenya that the International Monetary Fund (IMF) and other parties are working on amending the Act and that they should be ready soon.
“The IMF undertook an updated safeguard evaluation of the Central Bank of Kenya in September 2019. CBK is still adhering to ethical external and financial reporting procedures, and its board is actively engaged in supervision activities. The CBK also keeps up efficient operating controls,” according to the World Bank.
“The CBK has put most of the advice from the 2019 review into practice. Draft modifications to the CBK Act are ready for submission to Parliament and mostly address requests for safeguards.”
The main goal of IMF safeguard evaluations is to determine if a central bank can effectively manage the cash it receives and give accurate information.
“This is to make sure that loans to member nations are paid back as they become due so that money can be made accessible to other members who are in need.”  The IMF emphasizes that,” safeguards include restrictions on the amount that can be borrowed, loan terms, actions to address misreporting and arrears, and safeguard evaluations of central banks.”
The IMF lists six categories that have been evaluated in order to safeguard payments paid and reduce the possibility of providing the IMF with incomplete or erroneous information.
The six elements are: internal and external audit mechanisms, financial reporting, legal framework and autonomy, internal audit, and internal controls.
Following claims of resource misuse and instances of false reporting, the IMF implemented the measures in March 2000.
The evaluation, which is evaluated every five years, has grown to be an essential component of the IMF’s loan operations.
The multilateral lender finished the routine evaluation of the safeguards assessment policy in December of last year.
The IMF now treats the Central Bank’s governance structure as a separate pillar in the framework as a result of its most recent assessment.
In accordance with internationally recognized auditing standards, central banks are obligated to disclose their financial statements that have been independently audited by external auditors.
On December 23, the CBK emphasized the timely review’s successful conclusion, which included an independent advice report by an outside panel of specialists. Mohammed Nyaoga, the then-chairman of the apex bank, served as the chairman.
“In the five years following the last review in 2015, the external panel of experts evaluated the efficacy and appropriateness of the safeguards assessment policy. The panel submitted recommendations to the executive board to enhance and maximize the advantages from the safeguards assessment policy, in addition to providing its judgment on the effectiveness and appropriateness of the IMF’s safeguards assessment policy,” the CBK observed.
Currently, the CBK Act gives the top bank permission to serve as the government’s banker and fiscal agent.
The CBK is responsible for managing public debt, which includes issuing bonds and other government instruments, paying interest on them, and redeeming them. Additionally, it manages and runs various government accounts, including the exchequer’s.
At a time when the country’s public debt crisis is coming under closer scrutiny, the IMF is requesting tougher controls on how Kenya uses borrowed money.
Recent concerns expressed by the Auditor-General’s office concern the absence of financial reporting on public debt, the concealment of all guaranteed obligations, commitment fees, and debt service expenses.
“There are no financial statements made to reflect the debt position, and the status of public debt is only reported as an annexure in the consolidated fund account of expenditures. The amount redeemed and current value, and hence the legitimacy of the public debt expenditure, cannot be determined as a result,” the Auditor General told the National Assembly Public Debt and Privatization Committee.
Kenya has become more and more reliant on the lender for assistance with budget finance. The sixth review under the extended fund and extended credit facilities, as well as Kenya’s request for a 20-month arrangement under the resilience and sustainability facility, are both anticipated to be approved by the IMF executive board on Monday of the following week.
If the review is approved, the lender will provide Kenya a further Ksh57.8 billion ($410 million) credit.
On May 23, the IMF staff and the Kenyan government came to an agreement at the staff level on economic reforms and policies to wrap up the evaluation.
“While safeguarding key social spending, the expected fiscal contraction is appropriate. Given the tough global economic outlook and ongoing uncertainty in the international financial markets, exchange rate flexibility and proactive monetary policy will continue to be essential to maintaining macroeconomic stability and bolstering market confidence,” the IMF noted.
The IMF will give Kenya a total of Ksh342.6 billion ($2.43 billion) as part of the agreement, which was first agreed in February 2021.