The International Monetary Fund has extended the precautionary loan to Kenya by a month giving the government more time to draw the funds in case of a major macroeconomic shock.
The $687 million loan was approved by the fund’s executive board in February last year. It is meant to protect the shilling from major depreciation against the dollar and other world’s leading currencies.
It is also used to boost the country’s foreign exchange reserves to shield the economy from extreme shocks.
The extension will provide time for government and the IMF to conclude ongoing discussions on a similar type of loan for this year.
“The executive board of the International Monetary Fund approved on January 27, an extension of both Kenya’s stand-by arrangement and arrangement under the standby credit facility to March 15, 2016. This extension will provide time to the authorities to finalise fiscal measures for 2015/16 and implement structural measures under the program,” said IMF in a statement.
The IMF now projects that the economy will grow by 6 per cent this year, shifting from a forecast of 5.6 per cent last year, helped by farming and minimal exposure to the expected slowed growth in emerging markets like China.
In April last year, the Fund had estimated that the economy would grow by 6.5 per cent but it scaled down to 5.6 per cent in December citing slow rollout of infrastructure projects, weak receipts from tourism and fluctuations in capital flows.
Upon approval of the government’s request for a precautionary loan from the IMF in February last year, $535.5 million was immediately given to the government to draw if need be.
The first review of the country’s performance under the credit programme was conducted by the IMF’s executive board in September which approved access to $76.3 million of the remaining amount.
Treasury cabinet secretary Henry Rotich said that the country will only draw the funds if there is a real shock necessitating its usage, hinting that the credit remains untouched.
Data from the Central Bank of Kenya shows that foreign exchange reserves have stood at more than the recommended four months of import cover, providing cushion to the local currency.
A technical team from the IMF that was in the country in December to review its performance raised the alarm on the growing current account deficit.