IMF billions shield Kenya from shocks

Securing the facility is credit -positive for Kenya.

Tuesday March 22 2016

National Treasury Cabinet Secretary Henry Rotich (right) and International Monetary Fund resident representative Armando Morales during the official opening of the public hearings for the financial year 2016/17 and medium term budget on November 18, 2015. The IMF, on 14 March, announced that it had approved a Sh153 billion ($1.5 billion) precautionary loan for Kenya. PHOTO | DIANA NGILA NATION MEDIA GROUP

National Treasury Cabinet Secretary Henry Rotich (right) and International Monetary Fund resident representative Armando Morales during the official opening of the public hearings for the financial year 2016/17 and medium term budget on November 18, 2015. The IMF, on 14 March, announced that it had approved a Sh153 billion ($1.5 billion) precautionary loan for Kenya. PHOTO | DIANA NGILA NATION MEDIA GROUP 

By BRIAN NGUGI
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The Sh153 billion standby loan recently handed to Kenya by the International Monetary Fund, is a huge boost to the country’s growth, analysts said Monday, noting that it ring-fences the economy from possible shocks.

Ratings agency Moody’s Investors Service said the precautionary facility, which is backed by a set of reform programmes, will provide an important buffer to Kenya’s external vulnerability, while the IMF’s accompanying plan will boost the nation’s commitment to narrowing its large fiscal and current account deficits over the coming years.

“At roughly 20 per cent of Kenya’s current stock of reserves, the IMF facility would provide a significant boost to official foreign exchange reserve buffers (which were $7.3 billion as of 10 March), which would mitigate the effect of any external shock,” said Moody’s lead country analyst for Kenya Rita Babihuga, in a research note published on Kenya’s standby loan from the Bretton Woods Institution.

The IMF, on 14 March, announced that it had approved a Sh153 billion ($1.5 billion) precautionary loan for Kenya, one of the largest ever granted to a sub-Saharan African country.

Unlike standard IMF bailout loan programmes, the loan is formally described as a “standby,” meaning Kenya is only allowed to tap the facility in case of an emergency.

Securing the facility is credit -positive for Kenya.

Ms Babihuga said the IMF programme would provide a policy anchor for continued macroeconomic and institutional reform.

“In particular, by targeting a reduction in the fiscal deficit of 3 per cent of GDP over the next two years, as well as continued public financial management reforms, the IMF programme further commits Kenya to its stated objective of fiscal consolidation and will help prevent policy slippages, particularly as the country approaches elections in 2017,” said Ms Babihuga.

National Treasury Cabinet Secretary Henry Rotich has said the government’s plans in its fiscal 2016 budget is to reduce the overall fiscal deficit to 4.3 per cent percent of GDP in year 2018, and 3 per cent  of GDP by 2020 from 6.9 per cent this year.

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