Kenya to Quit G2G Oil Deal with Saudi Arabia

Kenya is planning to withdraw from the Government to Government (G2G) agreement with Saudi Arabia, acknowledging its negative impact on the forex market and admitting failure to alleviate pressure on the dollar.

The G2G deal, initiated by President William Ruto in April 2023, aimed to stabilize the shilling against the dollar.

According to an IMF report released on Wednesday, the Treasury stated, “The government intends to exit the oil import arrangement, as we are cognizant of the distortions it has created in the FX 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.”

Kenya acknowledges that the G2G deal was a short-term solution to address foreign exchange pressures. The arrangement, which provided a six-month credit for oil imports backed by letters of credit from participating commercial banks, faced challenges as actual monthly import volumes fell below agreed minimums in the first six months.

President Ruto had initially expressed optimism in April, anticipating a significant reduction in the exchange rate. However, the deal encountered low demand, leading to a decline in import volumes. Opposition leader Raila Odinga criticized the G2G deal, labeling it a scam and attributing a rise in fuel costs to benefit a select few government officials.

In response to Odinga’s criticism, President Ruto defended the transparency of the deal, emphasizing its dual purpose to assure international oil companies of timely payments after a six-month extension.

The decision to exit the G2G agreement reflects Kenya’s commitment to exploring alternative, market-driven solutions in the energy sector.