What you need to know:
- Lender is reviewing country’s progress on implementing the economic programme it is funding under its extended credit facility
In the next two years, Kenya can only qualify for Sh25 billion ($250 million) as an additional loan from the International Monetary Fund, to support recovery of the shilling, the Finance minister has said.
The country was seeking between Sh25 billion to Sh35 billion from the IMF under the Extended Credit Facility, over and above the Sh50 billion granted early this year, to boost its foreign exchange reserves.
“Our limit is $750 million (Sh75 billion) in the next two years and we already got commitment for $500 million early this year from the IMF, meaning that we can only get up to $250 million more,” Mr Kenyatta said during an update on the response of the financial markets to the recent measures put in place by Treasury and the Central Bank of Kenya (CBK).
Early this month, Treasury reduced the foreign exposure limit of commercial banks from 20 per cent to 10 per cent, to inject additional dollars in the market and meet growing demand, which had weakened the shilling to trade at Sh107 against the dollar on October 12.
The increment came days after the CBK raised its benchmark lending rate from 7 to 11 per cent.
“The CBK has intensified operations in the money market hoping to withdraw excess liquidity from the banking system, which has fuelled growth in bank credit to the private sector. I am pleased to announce that the measures have begun to yield results,” said Mr Kenyatta. “We have also written to line ministries to cut down on unnecessary expenditure.”
The weak shilling has made imports more expensive and contributed to the cost of living shooting up fivefold in 12 months.
This is not the first time Kenya is turning to the IMF to handle foreign exchange pressure. In 2009, the government doubled its loan request to the fund to $200 million.
Food and fuel are the main reasons cited by the Kenya National Bureau of statistics in its monthly bulletins that pushed the average annual inflation to 17.32 per cent in September 2011, its highest level this year.