BOOST

IMF loan boosts Kenya's falling forex reserves

In Summary
  • Last week, IMF  announced that it had approved the disbursement of $739 million (Sh79 billion) to Kenya to be drawn under the Rapid Credit Facility (RCF).
  • A highly placed source at the exchequer told the Star that the money checked into the account three days after approval.
Central Bank CBK Headquarters
Central Bank CBK Headquarters

Kenya’s foreign exchange reserve, which has been on a downward trend since March, grew by nine per cent; a week after IMF loaned the country $739 million.

A source at the exchequer told the Star that the money was credited into the account three days after approval. 

Weekly Central Bank of Kenya (CBK) data shows that the usable foreign exchange reserves rose to $8,532 million (Sh853.2 billion) (5.14 months of import cover) as of May 14, compared to $7,809 (Sh780.9 billion) or 4.7 months of import cover the previous week.

 

''This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,’’ CBK in a weekly bulletin.

Low diaspora remittance, limited activity in Kenya’s export market, and a battered tourism sector due to the coronavirus pandemic saw a significant shrink in the country’s forex reserve, leading to a fall of the shilling against the dollar.

This has had to expensive imports and in turn a rise in the price of some commodities.

Last week, the International Monetary Fund (IMF) announced that it had approved the disbursement of $739 million (Sh79 billion) to Kenya to be drawn under the Rapid Credit Facility (RCF).

According to the international lender, the loan would allow Kenya to maintain an adequate level of forex reserves and provide budget support to respond to the coronavirus pandemic.

"This will help to meet Kenya's urgent balance of payments need stemming from the outbreak of the Covid-19 pandemic," IMF said in a  statement.

The stabilization of the forex reserve is likely to help the country guard the local currency against global volatilities in absence of the IMF’s precautionary cover that expired in 2018.

 

Kenya has been in talks with the IMF to renew the facility with a team from Washington  that visited the country early this year leaving without a firm commitment.

The growth in forex reserves saw the shilling remain relatively stable against major international and regional currencies during the week ending May 14.  It exchanged at 106.59 per US dollar on May 14 compared to 106.08 on May 7.

Yesterday, the shilling strengthened further against the greenback due to weak dollar demand amid an increase in usable foreign currency reserves.

Even so, the country’s balance of payment continued to weaken further on Covid-19 effects.

Preliminary data on the balance of payments shows that the current account deficit was estimated at 6.2 per cent of GDP in the 12 months to March 2020 compared to 5.8 percent in the 12 months to December 2019.

This, according to CBK reflects lower receipts from horticulture and service exports.