Martin Mwita @PeopleDailyKe
Kenya’s economy has received a major boost after the International Monetary Fund (IMF) agreed to extend the expiring $1.5 billion (Sh151.8 billion) standby credit facility, providing the much needed cushion on the shilling against foreign currencies.
This follows a request by the government, through the National Treasury, for an extension of the facility to enable completion of the required reviews under the lender-supported programme.
IMF announced on Tuesday it had approved a six-month extension of the facility which include a $989.8 million (Sh100.3 billion) and $494.9 million (Sh50.1 billion) 24-month Standby Credit Facility (SCF) for Kenya, which was due to expire at the end of this month.
The two were approved in March 2016 for a combined Special Drawing Right (SDR) for Kenya. SDR is an international reserve asset, created by IMF in 1969 to supplement its member countries’ official reserves. As of September last year, 204.2 billion SDRs (about $291 billion) had been created and allocated to members.
“On March 12, the Executive Board of the International Monetary Fund approved Kenyan authorities’ request for a six-month extension of the country’s Stand-By Arrangement (SBA) to allow additional time to complete the outstanding reviews,” IMF said in a statement.
The Fund had withdrawn Kenya’s access to the facility in June, after the government failed to meet budget-deficit targets, with rising expenditure pegged on the drought that hit the country last year and the prolonged general elections. IMF has demanded a number of reforms including a reduced budget deficit and repeal of the rate cap law which came into place in September 2016.
National Treasury Cabinet Secretary Henry Rotich has since promised to implement reforms demanded by the Bretton Woods institution, saying his office will “reduce by half the government’s budget deficit by June 2021”, and review the 17-month-old cap.
“The reviews are expected to be completed by September 2018. Completion of the reviews will enable the Kenyan authorities to have access to funds available under the precautionary SBA,” IMF said. The latest development is a major relief for the shilling which had been left exposed to vulnerability from foreign exchange markets, mainly the US dollar which has a direct impact on the country’s import bill.
Though Kenya was yet to draw down on the two-year IMF facility, its availability is enough to calm possible market turbulence. Possible external shocks that can hit the country hard include sudden rise in global oil prices and strengthening of the greenback.
Reports of the facility’s withdrawal came out last month when the shilling was trading at an average 101.33 against the dollar, slightly weakening the shilling to 101.66 in late February to March 1. The local currency was depending on the foreign reserves for buffers which stood at $7.15 billion (Sh724.3 billion) as of March 1, latest Central Bank of Kenya data shows.