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February 17, 2019

State urged to take up IMF offer

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington. FILE
The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington. FILE

Stanbic Bank wants the government to reconsider taking up the International Monetary Fund’s precautionary loan facility to ease debt payment.

Since the facility’s expiry on September 14, government has shown no sign of renewing the programme instead exuding confidence that foreign exchange reserves are enough to cushion the shilling from external shocks.

“Given the upcoming external debt refinancing obligations in the first half of 2019, it will be key for the authorities to rekindle their relationship with the IMF and sign on to a new Facility programme,” Stanbic regional economist Jibran Qureishi said yesterday.

While the lack of a loan cushioning the country from external shocks does not necessarily mean there will be a crisis in the balance of payments, Qureishi said the IMF loan will attach a seal of approval providing surety especially for Eurobond investors.

Central Bank of Kenya’s weekly bulletins show the country’s forex reserves have been dropping continuously over the past few months to $7.9 billion (Sh805 billion) or 5.2 months of import cover compared to an all-time high of Sh1.22 trillion last July.

A lower import cover in the absence of IMF’s precautionary facility exposes the shilling to volatility and is likely to trigger surge in commodity prices as importers pass the high import bill to consumers.

According to CBK, this is well within the target to maintain at least four months of imports cover, and the EAC region’s convergence criteria of 4.5 months of import cover.

In October, IMF issued a report, indicating that Kenya was using its reserves to prop up the shilling which it said was overvalued by 17.5 percent, a claim governor Patrick Njoroge has denied saying the shilling is properly valued and depends on the forces of demand and supply.

Yesterday, the shilling appreciated marginally to 101.7 from Sh101.74 with traders attributing the gains to increased inflows from offshore investors buying government debt amid subdued oil importer demand for the dollar and high liquidity in the local.

Diaspora remittance, Kenya’s leading forex earner increased 28.41 per cent for 11 months to November to Sh227.98 billion from Sh177.53 billion over the same period in 2017.

With public debt currently at Sh5.15 trillion, the National Treasury has allocated Sh870.6 billion towards debt repayment in the current fiscal year alone.

Of this, Sh400 billion will go towards interest payment, while Sh470.6 billion has budgeted for redemption.

“In the event that Kenya takes on a new non-funded programme, refinancing external debt will probably be less expensive than would have otherwise been the case,” Qureishi said.

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