The Treasury is seeking Sh75 billion from the International Monetary Fund to stabilise the shilling which has lost up to a third of its value since the beginning of the year.
The money is Sh25 billion more than what Kenya can get under the Extended Credit Facility at present and is subject to a positive outcome of a review by an IMF mission that has been in the country in the past two weeks.
“Successful completion of the review will increase our access of the IMF resources under the current Extended Credit Facility (ECF) from about $500 million to $750 million over the next two years,” Finance minister and Deputy Prime Minister Uhuru Kenyatta said on Wednesday.
The shilling has slid from Sh80.80 to the dollar since the beginning of the year, hitting consecutive lows before reversing the losses at Sh107 two weeks after several measures were put in place by various government agencies. It was trading at Sh99.90 to the dollar on Wednesday.
Increasing imports, speculation by some market players and the sovereign debt crisis in Europe that has increased demand for the dollar have all been blamed for the depreciation of the local currency as well as those for Uganda and Tanzania.
The shilling’s loss of value has partly fuelled an inflation that hit 17.32 per cent in September, year-on-year, after rising for the eleventh month in a row.
Central Bank of Kenya governor Njuguna Ndung’u said the regulator was using open market operations to strengthen the currency.
This has seen the official foreign exchange reserves drop from $3.743 billion (equivalent to 3.44 months of imports) in the week ending October 21 compared to $3.987 billion in early September.
On Wednesday, Mr Kenyatta also introduced the newly appointed CBK deputy governor Haron Sirma, who will replace Hezron Nyangito whose tenure has been beset by health problems.
Mr Sirma joined the CBK in 1986 but had been working at the Treasury on secondment as the deputy director of the debt management department since 2004.
During the meeting called to take stock of efforts to stabilise the shilling, Mr Kenyatta said there was improved supply of foreign exchange in the interbank market after the foreign exchange exposure for commercial bank was cut from 20 per cent to 10 per cent of core capital two weeks ago.
IMF officials, including the head of mission, Domenico Fanizza, and resident representative Ragnar Gudmundsson attended the meeting but did not speak. They are scheduled to announce the results of their review next week.
The mission has been in the country from October 13 for routine consultations with government officials; to review performance of ECF and to discuss the request for additional funding under the programme.
Mr Kenyatta said the reduction in expenditure across ministries that was announced last week was yet to be quantified.
“The PS Treasury has already written to the various ministries to cut expenditure. But we have not yet determined by what amount the expenditure will be reduced,” he said.
Government decided to cut expenditure as a way to reduce pressure on lending rates by commercial banks following the hike of the Central Bank Rate to 11 from seven per cent early this month.
Mr Kenyatta also announced that the fight against Al-Shabaab would continue to ensure security and protect tourism revenues, laying a foundation for sustained growth.
“We will use the resources already allocated in the Budget,” said the minister.
In the event that the need arises, the Treasury will look into the matter of further expenditures. He also said the Treasury will conduct an internal audit on how the funds for the Kazi kwa Vijana programme that was funded by the World Bank were spent.
The World Bank has cancelled further funding of the initiative after it found that Sh33 million may have been lost through the office of the Prime Minister.
Public Accounts Committee chairman Boni Khalwale said on Tuesday that the committee would question Prime Minister Raila Odinga, who denies any wrong doing, over the alleged loss of funds.