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Moody’s says IMF loan will ‘shield’ Kenya

International Monetary Fund managing director Christine Lagarde with Treasury secretary Henry Rotich when she visited Kenya. PHOTO | FILE
International Monetary Fund managing director Christine Lagarde with Treasury secretary Henry Rotich when she visited Kenya. PHOTO | FILE 

The Sh153bn stand-by loan from the International Monetary Fund (IMF) has significantly boosted Kenya’s defence against external shocks, analysts at ratings firm Moody’s Investors Service said Monday.

While noting that the opinion was not a rating upgrade, Moody’s said the precautionary loan will provide an important buffer while the accompanying IMF programme will boost Kenya’s commitment to narrowing its large fiscal and current account deficits over the coming years.

“At roughly 20 per cent of Kenya’s current stock of reserves, the IMF facility would provide a significant boost to official foreign exchange reserve buffers (which were $7.3 billion as of 10 March), which would mitigate the effect of any external shock,” said Moody’s lead country analyst for Kenya Rita Babihuga, in a research note on the loan.

The IMF on March 14 announced it had approved the precautionary loan, which is one of the largest-ever granted to a sub-Saharan African country.

Unlike standard IMF bailout loan programs, the loan is formally described as a “standby,” meaning Kenya is only allowed to tap the facility in case of emergency. Ms Babihuga said the IMF program is will provide a policy backing for economic reforms.

“In particular, by targeting a reduction in the fiscal deficit of 3 per cent of GDP over the next two years as well as continued public financial management reforms, the IMF program further commits Kenya to its stated objective of fiscal consolidation and will help prevent policy slippages, particularly as the country approaches general elections in 2017,” said Ms Babihuga who termed the loan as a “credit positive”.

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