NAIROBI, Kenya, Oct 26 – The government could receive part of the Sh25 billion that it is seeking from the International Monetary Fund (IMF) to build up its foreign exchange reserves before the end of the year.
IMF Resident Representative Ragnar Gudmundsson told Capital Business that they will conclude their meetings with the government on Monday and their intention is to have the Executive Board consider and hopefully release the funds in December.
“The mission will finish on Monday and we need to produce our report and submit it to the Executive Board. If we can stick to the dates, then we should be in a position to disburse by the end of this year,” he said of their tentative schedule.
The IMF mission commenced discussions with the government on October 13 with the main agenda being to consider the request for an additional Sh25 billion ($250 million) over the next two years to cushion the country’s dwindling balance of payments.
The funds fall under the current Extended Credit Facility where about Sh50 billion ($500 million) has already been approved to help the country deal with the current challenges of a weak shilling and soaring inflation.
These shocks have been compounded by a ballooning current account deficit, prolonged dry spell and skyrocketing food and fuel prices, a situation that the IMF recommends should be addressed by further tightening the policy stance.
While revealing that the forums with the Kenya government were also looking into ways of restoring the macro-economic stability, Gudmundsson disclosed that part of the recommendations was to slow down the growth of credit to the private sector, which he said was a contributing factor.
According to the Resident Representative, the IMF had anticipated that the country would face these threats which have been exacerbated by higher than expected commodity prices and drought.
“This is why we are considering increasing our support because there are new challenges emerging,” he said adding that doing so would boost economic growth and ensure that Kenya has a ‘virtuous’ economic cycle.
Despite these real threats, the IMF projects a Gross Domestic Product growth rate of five percent for 2011 and a progressive rate in 2012.
By the end of 2013 which coincides with the release of the last batch of its assistance, the organisation expects a rate of growth of between six and 6.5 percent which are reasonable enough to impact poverty levels.
“With a population growth rate of about three percent, growth rates of 6.5 percent to seven percent are necessary to make a meaningful impact into poverty reduction,” the official said.
With the Fund favouring a further tightening of the monetary policy, the market then can expect a hike in the base lending rate when the Monetary Policy Committee (MPC) meets on November 1.
On October 5, the MPC shocked the market when it raised the Central Bank rate by four percent to 11 percent, a move that has led commercial banks to adjust their lending rates upwards as they seek to protect their profit margins.