IMF now releases Sh15bn to support shilling’s recovery
The International Monetary Fund has disbursed Sh15 billion ($144 million) to help Kenya shore up its foreign exchange reserves, adding impetus to the recovery of the shilling against hard currencies after it hit historic lows in October.
Announcing the release, IMF said it had extended the amount available under the extended credit facility (ECF) to Sh68 billion ($761 million).
Kenya has committed itself to freeze civil servant wages and minimise tax exemptions during the three years that the credit will be running.
Kenya has this year alone drawn Sh28 billion ($313 million) from the facility that was approved at the end of January.
Mr David Lipton, the first deputy managing director at IMF, said Kenya still needed to strengthen its economic fundamentals.
“The combination of external shocks and strong domestic demand, fuelled by rapidly expanding credit has led to sharp increase in inflation, a widening of the current account deficit, and currency depreciation,” he said.
CBK data shows the new injection will raise the official forex reserves to $3.9 billion from the $3.7 billion as at December 2 this year.
The reserves, however, are still $100 million less than the $4 billion at the beginning of September this year, after which the shilling hit consecutive lows before reversing losses at Sh107 to the dollar on October 12.
In the wake of the depreciation, IMF officials led by Dominica Fanizza stressed that Kenya needed to tighten its monetary policy to curb inflation.
CBK has raised the policy rate to 18 per cent as inflation reached 19.72 per cent in November while the shilling has appreciated to below Sh90 to the greenback in a matter of weeks.
But the IMF said that sustaining high growth would require fiscal and monetary policy adjustment to counter the impact of increasing international commodity prices on the country’s external position.
Monetary policy, it said, should be geared towards curbing government spending while protecting key outlays, including emergency food relief.
The World Bank, however, says this may be difficult because of implementation of the Constitution and the 2012 General eElection, two high expenditure votes
Mr Lipton noted the fiscal reforms under way, including the Public Financial Management Law and the new VAT law that will substantially reduce tax exemptions on food, fertiliser and other agricultural inputs.
He said it had also approved a modification of three performance criteria on net international reserves, the net domestic assets of the central bank, and the primary budget balance of the central government. [email protected]
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