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IMF ups Kenya’s foreign currency support account

BUSINESS
By Dominic Omondi | April 10th 2020
Forex: Shilling has suffered lately against the US dollar

Kenya’s reserve of foreign currency at the International Monetary Fund (IMF) has been doubled to Sh75 billion, boosting the country’s external position.

Treasury Cabinet Secretary Ukur Yatani told The Standard that Kenya’s quota of special drawing rights (SDR) at the IMF had been doubled from an equivalent of Sh37 billion.

The SDR is a world reserve asset whose value is based on a basket of five major international currencies that are widely used in transactions and exports. They include the US dollar, euro, Chinese yuan, Japanese yen and the pound sterling.

The Sh75 billion will be used for balance of payments, including importing critical commodities such as medical supplies, oil and fertiliser, as well as paying external loans.

“This is all to cushion us against external shocks. And we are doing it for balance of payments; money to balance our budget,” said Mr Yatani.

“With the drastic drop in revenue, for us to continue sustaining the current expenditure, unless we get a bit of support from elsewhere, it is going to be a challenge for us.”

Insurance facility

Increased SDR will help replenish Kenya’s official reserve of foreign exchange, which has been dwindling as the country grapples with increased capital flight as investors get jittery over the safety of their investments.

Yatani said Kenya is also in the process of negotiating a new insurance facility with the IMF after the previous one ended acrimoniously in September 2018.

Central Bank of Kenya Governor Patrick Njoroge has gone all out to protect the shilling against the coronavirus pandemic that has wreaked havoc worldwide.

Yesterday, the shilling was trading at 106.4 against the dollar from an average of 100 units in February before the country reported its first case of Covid-19 on March 13.

However, official foreign exchange reserves declined to a four-year low of $7.9 billion, or enough to cover 4.76 months.

This is against the backdrop of reports that the CBK had entered the open market to sell dollars to stabilise the local currency.

Although the reserves remain adequate and meet the CBK’s statutory requirement of at least four months of import cover - and the East African Community’s convergence criteria of 4.5 months of import cover - they have come close to the red line.

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