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IMF inflows ease pain for importers, lifts shilling

By Dominic Omondi | April 13th 2021
Treasury Cabinet Secretary Amb. Ukur Yattani. [File, Standard]

What has been a source of anger for most Kenyans on social media concerning the government’s huge appetite for loans is turning out to be good news for importers.

The disbursement of the Sh33 billion by the International Monetary Fund (IMF) has injected some life into the Kenyan Shilling, easing the pain for traders who use foreign currencies to buy goods and services in the global market.

By end of Friday last week, six days after the IMF released its first instalment of the Sh253 billion facility, the Kenyan shilling gained ground against the dollar, with Sh107.3 of the local unit fetching a greenback. This was the strongest exchange rate for the Shilling since August 6, 2020, when Sh107.9 of local currencies fetched a dollar.

The first tranche of the funds, which were available for use on April 2, after the IMF’s Executive Board approved the facility, are supposed to help the country manage its balance of payments.

This includes paying its external debt, a big chunk of which is in dollars. Disbursement of the IMF cash saw the country’s official foreign exchange reserves (forex) increase by Sh82 billion in one week to hit $7,425 million (Sh809.33 billion).

This is enough to cover the country’s imports for 4.56 months. The adverse effects of the Covid-19 pandemic have impacted Kenya’s reserves of foreign currencies negatively due to the poor inflow of tourist receipts.

However, Kenyans living and working abroad and low prices of crude oil have combined to ensure that the country’s external position does not get worse.

Official reserves are expected to improve even further in June when the second instalment of $411 million (Sh44.3 billion) will be available.

World Bank President David Malpass. [File, Standard.]

A strong Shilling is good for the importers who use hard currencies, mostly US Dollars, to buy products from the global market. Kenya is a net importer, meaning it imports more than it exports.

But a stronger Shilling is not good for exporters who are paid in foreign currencies for the goods they sell in the international market, including tea, coffee, flowers, vegetables, and titanium. A stronger Shilling will also hurt those who have stored their wealth in foreign currencies. With the weakening of the Shilling, lots of rich Kenyans have converted their wealth into dollars, with cash in foreign currency deposits surging by Sh130 billion since February last year.

Traders have also attributed the strengthening of the Shilling to increased inflow of dollars from foreign investors who participated in the just-concluded infrastructure bond, as well a steady flow of remittances from Kenyans working abroad.

However, Churchill Ogutu, the head of research at Genghis Capital, an investment bank, noted that because foreigners hold a paltry 2.6 per cent of the country’s total stock of infrastructure bonds, it is not possible that they had a substantial share in the Sh81.9 billion that the government received. Mr Ogutu noted that the Shilling started strengthening a week earlier before the IMF cash hit the government’s accounts at the CBK.

“Plus drilling down the forex reserves last week, it changed by roughly $80 million (Sh8.60 billion), which means that even if the (IMF) flows came in last week $300 million (Sh32.37 billion), they were more than offset by outflows,” said Ogutu.

However, CBK’s weekly bulletin shows that between April 1 and April 8, forex jumped by $82 million (Sh8.8 billion) while the Shilling strengthened from Sh109.3 to Sh108.2.

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