IMF lifts Kenya's forex reserves with Sh8bn
What you need to know:
- The National Treasury had sought the precautionary financial facility from the IMF last year. The money can only be drawn when a major depreciation of the shilling occurs or is set to occur.
- Thursday’s approval of additional funding to Kenya follows completion of the firs review of the country’s performance under the program by the IMF’s executive board.
Kenya can now access Sh8 billion ($76.3 million) from the International Monetary Fund (IMF) to cushion the local currency.
The money is the second tranche of a total $688.3 million precautionary loan to Kenya that was approved by the IMF executive board in February this year.
The Central Bank's national import cover is down to below 4 months for the first time since April 2013.
The Sh8 billion however is a drop in the ocean given that the regulator had sold almost a similar amount of dollars in the first week of September alone to intervene in the markets.
The National Treasury had sought the precautionary financial facility from the IMF last year. The money can only be drawn when a major depreciation of the shilling occurs or is set to occur.
Upon the IMF’s approval of the government’s request in February, $535.5 million was availed immediately with the remainder set to be drawn in two equal tranches.
Thursday’s approval of additional funding to Kenya follows completion of the firs review of the country’s performance under the program by the IMF’s executive board.
The final tranche of the funds will be issued upon completion of the second review scheduled to take place early 2016, according to IMF Kenya’s resident representative Armando Morales.
HEADWINDS
“Kenya’s economic performance has remained satisfactory despite headwinds from rising volatility in global markets and domestic security challenges.
Real GDP growth has been robust and notwithstanding the recent shilling depreciation, inflation has remained within the authorities’ target range,” said IMF’s deputy managing director and acting chair of the executive board Min Zhu in a statement following the discussion on Kenya.
The IMF institution has urged the government to fast track implementation of the treasury single account system and strengthen the National Treasury’s debt management office in order to sustainably maintain public debt.
The IMF has also called on the central bank to strengthen bank supervision in light of rapid expansion of Kenyan banks abroad so as to closely monitor foreign corporate borrowing in the wake of the recent exchange rate volatility.
CBK last week met bank CEOs and told them to take responsibility over foreign exchange decisions saying no one is immune from currency problems.
“Recent decisive steps by the central bank to tighten monetary policy are appropriate. These steps will help contain the impact of the recent shilling depreciation on domestic prices and anchor inflationary expectations,” said Mr Zhu.
The shilling is currently trading at a mean of Sh105, levels last seen in 2011 due to global strengthening of the dollar and reduced foreign exchange inflows from agriculture, trade and tourism.
Citi Bank Treasurer Ignatius Chicha said Kenya is doing well compared to the rest of the region adding that a gradual fall is better that a sudden depreciation and volatility.
