Treasury taps Sh105bn from IMF-backed dollar reserves

Central Bank of Kenya. FILE PHOTO | NMG

The Treasury in 2023 tapped Sh105 billion from the dollar reserves the Central Bank of Kenya (CBK) received from the International Monetary Fund (IMF) in the form of special drawing rights (SDR), new disclosures show.

The IMF SDR is a reserve currency created to supplement the official reserves of its poor member countries. It helps countries to improve liquidity.

The SDR funds were allocated to Kenya as part of the multilateral lender’s bailout to all countries to ease the balance of payment constraints for Covid-hit economies.

According to exchequer data for the year ended December 2023, the drawdowns now make up 2.1 percent of overall domestic debt.

The Treasury began drawing from the SDRs again in 2023 following an increase in allocations from the Fund in August 2021 to all IMF member countries to help deal with liquidity challenges following an economic downturn the pandemic caused.

Kenya remains pressed for funds amid demand to finance development after the Covid-19 shocks as well as the recent adverse drought.

With a tight revenue performance locally, the State has maintained forays into both the domestic and international borrowing markets although conditions have been unfavourable partly due to a highly fluctuating shilling and investor disinterest.

As of January 31, Kenya’s SDR holdings stood at Sh37.9 billion ($263.5 million) while its SDR allocations were Sh84.2 billion ($584.5 million). Interest earned and paid for the SDR resources usually varies with the effective interest rate in the week starting February 19 to February 25 at 4.112 percent.

In 2021, the IMF undertook its largest-ever SDR allocation increase to member countries to address the long-term global need for reserves, helping emerging markets and low-income countries to cope with the impact of Covid-19.

For Kenya, SDR drawdowns are complementary to other sources including grants and programme loans, borrowings in the domestic market, and externally including both commercial lending and funding from multilateral lenders such as the IMF.

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The IMF support through SDR bumps up funding for Kenya beyond the multi-year Extended Credit Facility and Extended Fund Facility program (ECF/EFF) that runs until April 2025.

The CBK does not disclose the rate charged on the exchequer for IMF SDR allocations.

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