CBK now says shilling does not need IMF guarantee

The Kenyan economy is well protected against capital outflows and does not need the International Monetary Fund’s (IMF) precautionary credit facility that Kenya could draw in case of distress, Central Bank of Kenya (CBK) Governor Patrick Njoroge says.

Treasury and other State officials are meeting with the IMF staff team this week in a fresh round of review that could see Kenya allowed or denied further access to the standby facility.

But speaking at a news conference in Nairobi on Tuesday, following a Monetary Policy Committee interest rate decision on Monday, Dr Njoroge said the facility would be crucial to provide liquidity to the financial system, if necessary.

However, he added that the country’s external position was strong at the moment, underpinned by strong remittances and exports.

The governor said a “comfortable” level of foreign reserves, which stood at $8.87 billion (Sh891.4 billion), equivalent to 5.92 months of import cover earlier this month, compared to $7.06 billion (Sh709.5 billion) equivalent to 4.73 months of import cover at the beginning of this year, provides another layer of defence against a decline or retreat in capital flows.

“The IMF is in town and they are reviewing our performance. We are confident in terms of our objectives…but at this point, we don’t need the money from that perspective. We have 5.9 months of import cover. We are pretty comfortable in that sense,” he said.

The IMF in mid-March approved Kenya’s request for a six-month extension of a Sh150 billion ($1.5 billion) standby credit precautionary facility that it could draw should the economy be in distress.

Kenya, in return, promised to repeal the law that caps interest rates within the extended six-month window that expires in September, setting consumers up for a possible steep rise in the cost of loans.

The credit facility is also tied to the Treasury’s fulfilment of the promise it made to cut back on the fiscal deficit through a raft of measures, including public spending cuts.

The IMF institution revealed this year that the credit had been suspended in mid-last year before the March 14 expiry date because of failure to meet the agreed fiscal deficit reduction targets.

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