Kenya’s Government-to-Government (G2G) oil import arrangement, first introduced in March 2023, was designed to secure petroleum supply on credit and reduce pressure on foreign exchange reserves. Under the deal, Kenya contracted Gulf suppliers such as Saudi Aramco, Abu Dhabi National Oil Company (ADNOC), and Emirates National Oil Company (ENOC) to deliver refined products on 180-day credit terms, replacing the open tender system that required immediate dollar settlements. The transition aimed to lower the monthly demand for U.S. dollars and help stabilize the Kenyan shilling.
In practice, the deal has delivered mixed outcomes. On the positive side, successive extensions of the arrangement, including through 2025 and beyond, have ensured continuity in fuel supply, avoiding stock-outs and logistical disruptions that previously risked local shortages. The structured credit has eased some short-term pressure on foreign exchange markets by spreading payment obligations over time rather than demanding immediate dollar outlays.
However, challenges have surfaced that raise questions about the arrangement’s long-term effectiveness. The International Monetary Fund and the National Treasury highlighted distortions in the foreign exchange market created by the G2G scheme, as well as increased rollover risk associated with private-sector financing facilities supporting it. According to official communications, average monthly import volumes fell short of agreed minimums amid weakening domestic and regional demand, limiting the volume and consistency of fuel imports under the G2G terms.
These distortions have contributed to broader currency market fragmentation, with private traders finding themselves committed to deferred payment structures that do not always align with market signals. This has prompted policy discussions about returning fuel import responsibilities to market-based mechanisms, and amending fuel pricing formulas to better reflect exchange rate risk and competitive dynamics.
From a fiscal perspective, the involvement of commercial banks in facilitating Letters of Credit and credit settlements has also shown stress. One major bank, KCB Group, recently relinquished a portion of its participation in the deal as part of a risk-management strategy, signaling caution among financial intermediaries about the structure’s sustainability.
The deal has served an immediate stabilizing role, especially in ensuring fuel availability and spreading payment obligations. However, it has not fully achieved its broader macroeconomic goals of smoothing foreign exchange pressures or fully stabilizing the shilling. More importantly, it has introduced market distortions and fiscal risk considerations that policymakers must weigh.
Looking ahead, Kenya may need to rethink the balance between state-brokered import arrangements and private-sector mechanisms, ensuring that future strategies deliver long-term price stability, efficient dollar utilization, and market resilience, rather than temporary relief at the cost of broader economic distortions.
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