IMF Urges Kenya To Complete The G2G Oil Import Deal
The International Monetary Fund (IMF) has expressed concerns about the government-to-government (G2G) oil importation agreement that the government signed with the Gulf region and has requested clarification on the matter.
Following the completion of the 7th and 8th Reviews of Kenya’s USD 3.6 billion (about Ksh460.8 billion at the current exchange rate) programme, the IMF’s Staff Report requests that President Ruto issue a way forward on the G2G deal, the future of which is unknown.
This comes after the government announced earlier this year that Kenya would exit the oil import deal on December 31, 2024.
In order to address the scarcity of US dollars at the time, the government entered into an oil agreement with four Gulf companies.
At the time, President William Ruto claimed that the move would help to stabilize foreign exchange rates.
IMF says that Kenya may need to compensate Gulf Oil companies for not meeting the minimum fuel import volumes stipulated in the G2G agreement.
— Mwango Capital (@MwangoCapital) November 2, 2024
The shortfall stems from a decrease in domestic fuel demand (driven by high prices?) and Uganda's recent decision to import fuel… pic.twitter.com/RhsHLeZICd
However, the government reversed its initial decision after the G2G deal encountered numerous challenges.
One of the most significant challenges was the distortions caused in the forex market, which necessitated the termination.
“The government intends to exit the oil import agreement, as we are aware of the distortions it has created in the forex (FX) market,” the Treasury noted.
The IMF is concerned because Kenya’s oil import industry is expected to be transferred to the private sector in the long run, but the government has yet to communicate a timeline for this transition.
“The authorities envisage the private sector eventually taking over the entire operation of the scheme but have not committed on the timeline,” the report stated in part.
The Staff Report also stated that imported volumes of oil during the G2G deal fell short of the contracted amounts due to a decrease in fuel consumption in both the domestic and re-export markets.
Uganda, an important destination for oil re-exports, decided to source its fuel imports directly, exacerbating the situation.
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The government announced the shortcoming earlier this year, corroborating the IMF’s findings.
“In the first six months, the actual average monthly import volumes fell short of the minimums agreed under the arrangement. This was due to lower demand from our domestic market as well as from the regional re-export markets,” the government noted.
The IMF also noted that more banks are participating in the G2G importation scheme, despite the fact that activity is still concentrated in one large bank with a significant government stake.
“Under the G2G oil importation scheme, more banks are participating, although activity remains concentrated in one large bank with sizable government shareholding,” the report noted.
IMF Urges Kenya To Complete The G2G Oil Import Deal
