Kenya is seeking to exit the Government to Government (G2G) deal with Saudi Arabia saying that it is distorting the forex market admitting that it has failed to ease the pressure on the dollar.

The G2G deal which was launched by President William Ruto in April 2023, was billed as the solution to stabilising the shilling against the dollar.n

The deal agreed between Kenya and three national oil exporters from the Gulf, provides for six-month credit for oil imports, backed by letters of credit issued by participating commercial banks.

"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," the Treasury is quoted in an IMF report published Wednesday.

The government admits that the deal was a short-term measure to help ease foreign exchange pressures.

"As an interim measure to help ease FX pressures, we introduced a new oil import arrangement in April 2023. It replaced the previous open tendering system, under which oil import dues were payable upon five days of delivery, often creating undue FX market pressures," the government says.

Kenya admits that the deal soured immediately saying that there was low demand which saw the import volumes dip.

"In the first 6 months, the actual average monthly import volumes fell short of the monthly minimums agreed under the arrangement. This was due to lower demand from our domestic market as well as from the regional reexports markets," the government said.