The National Treasury has admitted that the controversial G-to-G fuel deal has failed and is now distorting the forex exchange market.
In disclosures to the International Monetary Fund (IMF), the National Treasury has stated that the deal which was touted as a solution to Kenya’s depreciating currency has failed to stop the currency depreciation, in a move that has vindicated critics of the controversial program.
The National Treasury has also said that it is planning to end the deal in December 2024.
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“The government intends to exit the oil import arrangement, as we are cognizant of the distortions it has created in the FX (forex) 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,” the National Treasury in an IMF report that was published on Wednesday, January 17, 2024.
The government further disclosed that in the first six months of the deal, the actual average monthly import volumes fell short of the monthly minimums that had been agreed under the arrangement.
“This was due to lower demand from our domestic market as well as from the regional re-exports markets,” the Treasury stated in its report.
The deal has been running through three main oil companies, Galana Energies, Gulf Energy, and Oryx Energies.
These companies have reportedly been distributing fuel on behalf of three oil companies owned by Saudi Aramco, Abu Dhabi Oil Company, and Emirates National Oil Company.
When the government initiated the deal, it blamed the Open Tender System (OTS) for what creating persistent dollar shortages in the market. The government claimed that under the new deal, the Kenya shilling would appreciate against the US dollars to levels of between 115 and 120.
However, since the start of the deal, the shilling has lost by over 20 per cent against the US dollar and has since passed the historical low mark of 160 to the dollar.
