Sh12b IMF loan to shore up forex reserves

December 13, 2011

, NAIROBI, Kenya, Dec 13 – The International Monetary Fund (IMF) has approved the disbursement of Sh12.9 billion ($143.67 million) to help Kenya build up its foreign exchange reserves.

The money falls under the current Extended Credit Facility (ECF) and brings the total amount disbursed to Sh28.1 billion ($312.7 million) to help the country deal with the current challenges of a weak shilling and soaring inflation.

Kenya has been seeking Sh25 billion in additional funds that the government had requested in order to cushion the country’s dwindling balance of payments.

“The Executive Board of the International Monetary Fund has completed the second review of Kenya’s economic performance under a three-year arrangement under the ECF,” a statement from the IMF read.

The statement which was read by CBK Governor Prof Njuguna Ndung’u, further said: “The board also approved an augmentation of access equal to 60 percent of quota, an amount equivalent to about $760.63 million (Sh68.3 billion) under the ECF arrangement.”

An IMF mission was in the country in October to consider the request and had exuded confidence that the money would be released before the end of the year.

While welcoming the move, Ndung’u expressed optimism that the funds would help stabilise the exchange rate.

This optimism was reflected in the shilling which strengthened by 1.1 percent to Sh88.75 on the news that the money had been disbursed.

Although it’s good news, the money however comes with conditions among them the further tightening of the policy stance to contain the challenges that are threatening the macro-economic stability.

The IMF contends that for high economic growth to be achieved and sustained, the country will have to address the macroeconomic vulnerabilities through fiscal and monetary policy adjustment.

One of the recommendations that the Bretton Woods institution made was that credit to the private sector should be reduced since it was contributing to the inflationary pressures and the ballooning current account deficit.

With the Fund favouring a further tightening of the monetary policy, the market has since October seen three hikes in the indicative base rate to 11 percent and there are expectations that the Central Bank Rate could increase it further in coming reviews that are undertaken on the first day of every month.

However, it does acknowledge that these measures will have to be complemented by ‘strengthened fiscal consolidation’ to curb domestic demand.

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