Kenya free to draw Sh80bn in fresh IMF kitty

This is part a 71.3 trillion reserve asset announced on Monday.

In Summary

•It is the biggest total SDR in history targeting to support poor countries.

•Kenya can choose to sell the special drawing rights under voluntary arrangements for actual currency or hold the SDRs as part of its foreign exchange reserves.

IMF headquarters
IMF headquarters

Kenya has earned Sh80.8 billion ($737.6 million) worth of special drawing rights (SDRs) from the International Monetary Fund (IMF).

This is part of the $650 billion (Sh71.3 trillion) special reserve announced on Monday by the IMF, meant to support poor countries during emergencies mainly by cushion them from expensive loans.

It is the largest allocation of SDRs in history.

The SDRs refer to interest-bearing international reserve assets created by the multi-lateral lender in 1969 to supplement other reserve assets by member countries.

It is not a loan or currency but is a claim on free usable currencies of IMF members.

This means that a country can choose to sell the special drawing rights under voluntary arrangements for actual currency with one SDR currently equivalent to $1.4184 (Sh155.61).

Alternatively, Kenya can choose to hold the SDRs as part of its foreign exchange reserves.

Moreover, the SDRs can be used for other authorised operations including the payment of loans, obligations and pledges.

The Bretton Woods institution expects the allocation will provide additional liquidity to the global economic system–supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt.

Of the total reserve, about $275 billion (Sh30.2 trillion) is going to emerging and developing countries( where Kenya falls), of which low-income countries will receive about $21 billion (Sh2.3 trilion)–equivalent to as much as six per cent of GDP in some cases.

The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis,” IMF managing director Kristalina Georgieva said in a statement.

To support countries, and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability.

The IMF will also provide regular updates on all SDR holdings, transactions, and trading – including a follow-up report on the use of SDRs in two years’ time, it said yesterday.

It is a second major offering after the $173 billion (Sh18.9 trillion ) announced in September last year, where Kenya was among 73 countries that were granted access to the fund.

This week's allocation comes at a time when the Kenyan government continues on the balancing act of re-opening of the economy and containing the spread of the virus, a mid low revenues and a high debt stock.

One of the recent move was extending working hours for restaurants and allowing public transport vehicles to carry full capacity.

President Uhuru Kenyatta however last week extended the nationwide 10pm to 4am curfew for another 60 days.

All physical and in-person public gatherings and meetings, including political rallies and campaign meetings for impending by elections also remain suspended for a similar period.

Kenya has received more than Sh491.2 billion in Covid related loans and grants from key financiers and foreign governments in the past 16 months, with the public debt currently standing at Sh7.712 trillion.

To magnify the benefits of this allocation, the IMF is encouraging voluntary channeling of some SDRs from countries with strong external positions to countries most in need.

Over the past 16 months, some members have already pledged to lend $24billion (Sh2.6 trillion) including $15 billion (Sh1.6 trillion) from their existing SDRs, to the IMF’s Poverty Reduction and Growth Trust, which provides concessional loans to low-income countries.

This is just a start, and the IMF will continue to work with our members to build on this effort,” it said yesterday.