The Kenyan government has told the International Monetary Fund (IMF) that it is looking to exit its deal with the national oil exporters of Saudi Arabia, Dubai and Abu Dhabi, that provides for six-month credit for oil imports, backed by letters of credit (L/Cs) issued by participating commercial banks.

The deal was struck as an interim measure to help ease foreign exchange pressures and the new oil import arrangement was introduced in April 2023, when Kenya Commercial Bank, NCBA Bank, Absa Bank Kenya, Stanbic Bank and Co-op Bank, alongside the Africa Export-Import Bank, were appointed to issue L/Cs to selected oil marketers (DC World News, 3 April 2023).

Extension on better terms

In the first six months under the new arrangement, the actual average monthly import volumes fell short of the monthly minimums agreed. This was due to lower demand from Kenya's domestic market as well as from the regional re-exports markets.

The initial agreement was extended for another twelve months to December 2024 with more favourable costing terms. The extension of the arrangement reduces the risk of materialisation of contingent liabilities due to shortfall in the actual imports.

Intended exit

The Kenyan authorities however told IMF officials during a recent Article IV consultation that the government now intends to exit the oil import arrangement.

"We are cognisant of the distortions it has created in the foreign exchange 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," they said.

The IMF's Kenya: 2023 Article IV Consultation in which the Kenyan authorities announce their intention to exit the oil agreement (pages 129-130) can be downloaded from here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.