Kenya, IMF set for talks on new standby credit facility
An International Monetary Fund (IMF) delegation is expected in the country later this month to resume negotiations with Central Bank of Kenya (CBK) over the $1.5 billion (Sh150 billion) standby facility intended to cushion the Kenyan shilling from major economic shocks.
CBK Governor Patrick Njoroge says the world is becoming more volatile and unpredictable so much that there is need for a stand-by facility in the event of an unlikely occurrence.
“We have reserves and resources for policy manoeuvre but I think if things really went south, then we will need an insurance as we all know,” he said.
“We are at the end of January and so we are talking of February-March sometime there,” he added during a media briefing in Nairobi.
The negotiations which stalled following the exit of Finance Cabinet Secretary Henry Rotich and his Principal Secretary Kamau Thugge on corruption charges has seen Kenya go for more than a year without the precautionary facility.
In 2011, Kenya experienced an attack on the currency by speculators who exploited the country’s weak export base and heavy demand for imports that pushed the currency to Sh108 against the dollar.
The speculators bought US dollars and dumped the local currency driving down the shilling leading to a crisis that saw interest rates hiked in a Paul Volker style jerk that left loan borrowers struggling to cope.
“There is no point in trying to get an insurance after you have had the accident,” Njoroge said.
Kenya’s debt to gross domestic product (GDP) ratio has been rising with IMF criticising the country’s management of its debt. The debt level is a key factor that currency traders among them major commercial banks across the globe use to launch speculation attacks.
It is, however, feared that IMF officials may propose tough austerity and fiscal policy measures that could increase pain on Kenyans.
Njoroge, however, said that the banking sector regulator will not be bullied into accepting conditions that will be unfavorable to the general economy.
He said Kenya is, however, not in a rush to get the insurance facility, saying they are relaxed and there is no pressure, adding: “Although Kenya requires the insurance, the country is not under any pressure or in a rush to secure it.
The IMF has been critical of the country’s total debt standing, which it reckons is way above government official figures if public guarantees and parastatal debts are included.
The facility is important in cushioning the country against any shocks to the balance of payments and the stability of the shilling.The two-year standby loan facility expired in September 2018.