Kenya bets on IMF funds to lift forex cover

Kenya is banking on a change in International Monetary Fund (IMF) terms regarding loan access limit to stock up the country’s foreign exchange reserves, after successive months of depletion, linked to debt repayment.

The change of policy, which is a temporary intervention to economic shocks, will last for one year and will see IMF increase the quota allocation of Special Drawing Rights (SDRs) to various eligible countries including Kenya.

While it is still not clear how much Kenya will request on top of the limit, Kenya’s quota at the IMF is currently at SDR 542.8 million or $739 million (Sh96.07 billion) that is being drawn under the Rapid Credit Facility (RCF). Eligibility to borrow under IMF’s normal access limits is capped at a total of 435 per cent of a country’s SDR quota, and Kenya has so far utilised 335 per cent of that, offering forex buffers during external shocks. 

Kenya’s total combined access would reach 405 per cent of quota when SDR is fully disbursed, but this can be adjusted upwards when there are pressing financial needs.  In a post-Monetary Policy Committee (MPC) media briefing, Central Bank of Kenya (CBK) Governor Patrick Njoroge acknowledged that the country’s dollar inflow has significantly dropped over a couple of months.

Global safety nets

“The number we had for IMF will be scaled up for several reasons. This is really a reflecting of their accepting that they are global safety nets and things are quite tight for emerging markets and developing countries such as ourselves,” he said.

IMF board is expected to complete their review of its SDR arrangement with Kenya by end of June. IMF’s SDRs are often cheaper and meant to supplement a country’s existing foreign exchange reserves as they cut reliance on more expensive domestic or external debt.

To further cool the FX turmoil, there is also $1 billion (Sh130 billion) World Bank loan facility that Kenya will receive this April after successfully re-lobbying for an increment from the initial allocation of $750 million that was approved by the multilateral lender last December.

World Bank rejected extending the full $1 billion request through Development Policy Operation (DPO) facility due to Kenya’s high fiscal risk.