Treasury Cabinet Secretary Njuguna Ndung'u has confirmed that Kenya plans to exit the government-to-government oil deal with select Saudi Arabia companies by December this year.
He, however, refuted reports alleging that the exit was occasioned by the frustrations witnessed in the foreign exchange market, insisting that Kenya had planned to eventually end the deal once it achieved its end goals.
In a statement on Friday, the CS explained that the g2g arrangement was implemented as a temporary measure to stabilise the Kenyan shilling amid the acute dollar shortage.
He noted that at the time of the deal's conception, the monthly demand for US Dollars by the oil sector had put a strain on the country's forex reserves and subsequently threatened the security of the supply of petroleum.
Pressure was also exerted on other critical sectors such as food and agriculture that heavily rely on imports.
Hence, the government's eventual exit from the deal was part of a strategic plan to pave the way for the private sector players to take a more prominent role.
A report by the International Monetary Fund (IMF) revealed that the government was set to exit the deal by December 2024.
"We condemn in the strongest possible terms the misreporting and express our profound concern over the deliberate misinterpretation of the text within the International Monetary Fund (IMF) report, particularly under the Memorandum of Economic and Financial Policies," Ndung'u stated.
"The suggestion that the government's exit is a noteworthy development is unfounded, as it aligns with the pre-established timeline and objectives of the initiative."
Further, the Treasury CS disputed claims that the oil deal was a 'failure' owing to the weakening of the shilling in the market.
Ndung'u explained that the oil agreement faced difficulties, including the rollover risk linked to private sector facilities that were backing the arrangement.
He added that this was a predictable outcome given the arrangement of the deal.
The CS credited the oil purchased on credit for easing the pressure on the US dollar at a time when the country was at risk of an economic shutdown.
"The G to G arrangement came in to stabilize the macroeconomic environment by providing an extended credit period for petroleum imports ie 180 days compared to the initial 30 days and this freed about 30 per cent of the country's forex to other sectors of the economy. As a result, the depreciation of the Kenya Shilling slowed down as demand for US Dollars declined gradually," he noted.
"Absence of a framework like the G to G would have sunk the country's economy at a period when the Federal Reserve rate rose to the highest in 22 years leading to capital flight from many frontier markets and which could have exacerbated the US Dollar liquidity issues and led to rapid depreciation of the Kenya Shilling."
In September last year, Kenya extended the government-to-government deal until December 2024 from December 2023.
Documents issued by the Energy and Petroleum Regulatory Authority (Epra) detailed that the extension was meant to help ease the burden of credit repayment.
