IMF approves Sh62.6bn standby loan for Kenya

International Monetary Fund (IMF) has approved Kenya’s request for Sh62.6 billion ($688.3 million) standby loan that will only be drawn if need be.

The money will be available to Central Bank of Kenya (CBK) the next fiscal year to bulwark the local currency from internal and external shocks such as adverse weather and huge imports for infrastructure projects.

“The economy remains vulnerable to shocks arising from Kenya’s growing integration into global markets, security concerns, and extreme weather events. In this context, the new arrangements with IMF provide a policy anchor for continued reforms, and would mitigate the impact of shocks if they materialise, supporting continued strong growth and poverty reduction,” said Naoyuki Shinohara, deputy managing director and acting chair of IMF executive board.

From the approved facility, Sh34.5 billion ($380 million) will immediately be available while the remaining amount will be availed in two equal tranches upon completion of semi-annual programme reviews.

The Treasury plans to treat the loan as precautionary with no plans to tap it unless external shocks lead to an actual need to plug the balance-of-payment.

The shilling ceded 4.8 per cent to the dollar in the past year. The depreciation has been gradual unlike the scenario witnessed in 2011 when it plunged to a historic low of Sh107 to the dollar within 12 months.

Tuesday, the shilling gained against the greenbuck to Sh91.50 from Sh91.70 on Monday.

“There has been subdued demand of the dollar mainly because it is beginning of the month, but we anticipate it to build up as the month progresses,” said Robert Gatobu, a forex dealer at Bank of Africa.

Analysts at Stratlink expect the shilling to remain under pressure due to the deteriorating current account balance brought about by growing merchandise imports and depressed export earnings.

There had been fears that security challenges could also see foreign investors exit the Kenyan market, a move that could further hurt the shilling.

“Our view is that the shilling will trade in the 90 to 93.50 range to the dollar in the short term (30 days) and 89-94 in the medium term (180 days),” said the research firm in a note to investors.

READ: Citi Africa predicts Kenya shilling to hit 95 to dollar

The Treasury application for the loan is part of measures taken to prevent a recurrence of the shocks that hit the economy following the depreciation of 2011.

Central Bank is holding foreign currency equivalent to Sh655 billion ($7.2 billion) a war-chest that it can use to defend the shilling in the open market.

READ: CBK foreign reserves down by Sh9bn on dollar revaluation

IMF, however, took exception with lack of timely and comprehensive economic data on the country. The data is important to guide decision-making and assessing policy impact. IMF has in the past questioned the accuracy of Kenya’s inflation figures.

The executive board also noted the government was committed to containing its spending while increasing revenues.

This is expected to check inflation arising from increased cash supply, especially with ongoing heavy infrastructural projects, while containing debt uptake by Treasury.

Mr Shinohara, however, noted the improving financial oversight to address vulnerabilities in the financial sector attributable to rapid credit growth and fast expansion of cross-border operations by Kenyan banks.

The Treasury plans to introduce a new apex body, Financial Stability Council, to monitor the country’s financial health and CBK has come up with joint regulation with regional countries.