Kenya’s IMF stand-by facility expired yesterday, but the government is confident the foreign exchange reserves can for now cushion the shilling.
‘’The IMF arrangement with Kenya expires today[yesterday]. The fact that we did not tap into it last year when the country experienced tough economic times caused by prolonged drought shows that we are self-reliant and can do without it,’’said National Treasury Cabinet Secretary Henry Rotich.
The International Monetary Fund granted Kenya the $1.5 billion (Sh150 billion) facility on March14, 2016 and secured a six-month extension in March this year but with conditions.
Rotich, while launching the medium term budget making process for 2019/2020 and 2020/2022 in Nairobi said Kenya is a maturing economy and the country is working towards easing dependency on precautionary arrangements.
He added that the country has steady forex reserve to cushion shilling against external forces and can cover six months of sustained imports.
‘’The shilling has remained stable against major world currencies since January supported by high diaspora remittance and calm business environment after prolonged elections last year,’’ Rotich said.
He said Treasury is looking forward to IMF’s feedback on fiscal policy review which was concluded last month. He however indicated that Kenya is at liberty to request for a new facility if need arises.
Even so, both shilling and Nairobi Security Exchange (NSE) yesterday plunged aimporters and bankers rushed to stock their dollar accounts over uncertainty regarding the status of the IMF arrangement.
According to Reuters, the shilling weakened against US dollar to trade at Sh101.02/101.22 morning hours from Sh 100.75/95 on Wednesday.
‘’Kenya’s central bank pumped in dollars into the market late in Thursday’s trading session after the shilling weakened due to the expiry of a stand-by loan facility with the International Monetary Fund,’’ traders told Reuters.
The shilling rose to 100.85/101.05 per dollar after the intervention. This was the first time the shilling was crossing the Sh101.1 margin since May 28, 2018 when it traded at Sh101.49 against the green back.
All indices at NSE closed in negative with the Nairobi All Share Index (NASI) shedding 180 basis points to settle at a value of 157.06. NSE25 on other hand lost 37.79 in value to close market with 4024.26 while NSE20’s value dropped 1.06 per cent compared to Wednesday.
In March, besides promising to raise tax bracket to shore up domestic revenues as a condition to access the Sh150 billion insurance, Kenya promised IMF that it will cut on fiscal deficit, debt and recurrent expenditure.
It also committed to scrapping or modifying interest rate cap law as well as freezing some development projects.