IMF wants state to abolish the law on capping interest saying the law signed by President Kenyatta will weigh down economic growth

IMF wants state to abolish the law on capping interest saying the law signed by President Kenyatta will weigh down economic growth

The International Monetary Fund (IMF) has urged Kenya’s government to abolish the new law which capped interest rates at 14.5 %.

The international lender says the law, which was signed by President Uhuru Kenyatta in August 2016 is likely to weigh down the country’s economic growth given that it has significantly reduced access to credit for SMEs, which account for 30 % of the jobs in Kenya, according to the latest government statistics.

IMF Deputy Managing Director and Acting Chair, Min Zhu says abolishing the interest capping rate law would help mitigate the impact of “potential exogenous shocks thus enhancing a robust growth performance.

“In this context, the new precautionary arrangements would provide a policy anchor for continued macroeconomic and institutional reform, and would help mitigate the impact of potential exogenous shocks if they were to materialize,” said Mr Zhu, who was referring to a $1.5 billion (Sh156 billion) precautionary loan that the IMF approved for Kenya in 2016.

He added that Kenya’s recent growth performance remains robust and the country’s outlook is positive.

“Despite positive policy steps undertaken under the current Fund-supported program, the economy remains vulnerable to shocks, reflecting less favourable global financial market conditions, as well as continued security threats and extreme weather events,” he said.

IMF wants the government to scrap law saying it will deteriorate the economy.

Mr Zhu said authorities are taking actions to preserve financial stability, including steps to strengthen micro and macro prudential stress testing and the capital adequacy assessment framework and develop a legal and operational crisis management system.

“Continued improvement in the quality of macroeconomic statistics and strengthening the business climate will be key to promoting transparency and evidence-based policy making, and supporting inclusive growth,” Zhu said.

The Kenya Private Sector Alliance (KEPSA) had earlier criticised President Uhuru Kenyatta’s move to ascent the rate capping law, saying it would bar a majority of SMEs from accessing loans.

The banking sector has seen thousands of jobs lost with some lenders reporting a decrease in revenue since the law came into effect.

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