The financial market was jolted by yesterday’s announcement that the country had lost access to a Sh100 billion precautionary loan from the International Monetary Fund.
Kenya had secured a six-month extension in March of the Sh100 billion ($989.8 million) arrangement, agreed in 2016 to help cushion the economy in case of unforeseen external shocks.
Making the announcement yesterday, Finance Cabinet Secretary Henry Rotich however insisted that the country was well-prepared for any economic shocks.
Mr Rotich maintained that the country was still in talks with the IMF for a new programme after the lapsing of the Sh100 billion Standby Arrangement (SBA) and Standby Credit Facility (SCF) of Sh500 billion.
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Even as CS Rotich spoke while launching preparation for the 2019 budget at KICC, confidence in the market was shaken by the news, with foreign investors selling off at the Nairobi Securities Exchange (NSE), causing a decline in the valuation of listed stocks in the capital markets.
Yesterday the market lost Sh37 billion of its value with all indexes pointing to further decline. Key stocks such as KCB Group closed 1.80 per cent lower at Sh40.75, while Equity Group Holdings was down 2.29 per cent to trade at Sh42.50. Safaricom was also down to Sh26.25 from Sh27 on Wednesday.
On the currency side, the Kenya shilling lost against the US dollar, trading at 101.9 from 100.9 - the highest depreciation since January.
Reuters reported that the Central Bank of Kenya pumped dollars into the market in late Thursday’s trading session after the shilling weakened.
The Eurobond also experienced panic sales following the announcement.
Clarifying the Government’s position on the crucial facility, a senior Treasury official said the renewal of the standby loan was frustrated by the failure of Kenya to enact the Finance Bill that contained crucial proposals being pushed by the IMF.
“We have had dozens of programmes with the IMF. This has been a two-year programme that has been successful in instituting policy reforms. We will be engaging them with a view of getting a new arrangement,” said official explained.
Briefing the media yesterday, Rotich downplayed growing concerns of a plunge in investor confidence in the absence of the IMF programme, saying Kenya was a medium income country with strong reserves to cushion the economy against external shocks.
“We are able to go into the international markets and get funds because investors can look at us as individuals. We should not continue relying on the IMF programme,” he said.
An analyst who did not want to be named said the market had expected the Kenyan Government to lose access to the facility and was now focusing on the Finance Bill to see if Kenya would follow the path laid by the international lender.
“The concern mainly came from corporates, but it was expected. What the investors are asking is, how credible will the fiscal consolidation be without IMF policing and spending pressures on the Big Four agenda?” the source said.
Principal Secretary Kamau Thugge said that not having an IMF precautionary arrangement would not hurt the economy. He said Kenya did not draw from the precautionary arrangement last year.
“Last year we had a huge drought and had to import food. We also had floods but did not draw. The end of the arrangement will not have an impact on the macro economy,” said Dr Thugge.
Kenya has $8.5 billion (Sh850 billion) in forex reserves, which are enough to cover 5.7 months of the country’s imports. But by intervening to prevent a steep shilling fall and rising oil prices, the country may end up using a big chunk of the reserves.