IMF More Than Doubles Kenya's Standby Loans to $1.5 Billion

  • East African economy didn't draw down on previous loans
  • Kenyan shilling has been largely stable since November

The International Monetary Fund approved $1.5 billion in precautionary funding for Kenya, East Africa’s biggest economy, the Washington-based lender said.

The agreement comprises a $989.8 million so-called standby arrangement and a $494.9 million standby credit facility, both for two years, the IMF said in a statement on its website. Kenya is now entitled to access about $757.5 million of the total, with the remainder available in four portions upon completion of semi-annual reviews, it said.

“Kenyan authorities have indicated that they will continue to treat both arrangements as precautionary,” according to the IMF. They don’t intend to draw on the them “unless exogenous shocks lead to an actual balance of payments need,” it said.

Kenya’s fiscal deficit is expected to reduce by 3 percentage points of gross domestic product over the next two years, the IMF said. The Treasury targets annual economic expansion of 10 percent, accelerating from the current average of 5 percent to 6 percent.

The IMF and Kenya had agreed on a $688 million year-long facility that expired earlier this year to cushion the nation against any exogenous or internal shocks. The country did not draw down on the facility even when its currency depreciated to a low of 106.10 per dollar in September.

“I do not foresee any more shocks till the end of the fiscal year in June,” Kenneth Minjire, a fixed-income analyst at Stanlib Kenya, said by phone. “An increase in the U.S. Fed rate seems unlikely, and I don’t expect any shocks in oil since supply is increasing and demand is low.”

Internally, Kenya’s tourism sector has been recovering in the past few months and hotels at the country’s Indian Ocean coast were fully booked ahead of the Easter holiday later this month.

Kenya’s central bank projects that the current-account deficit would narrow to 8.8 percent of GDP this year, from 10.4 percent in 2014.

Last year, borrowing costs shot up as the market demanded higher returns for lending to the government when it was short of cash. The three-month Treasury bill rose to 22.5 percent in October, but the rate has fallen to 8.8 percent at the latest auction.

“It may help with people’s expectations in that the CBK is not desperate for dollars, and so the market cannot push the CBK to the wall,” Fred Moturi, head of fixed income securities at Sterling Investments Bank, said by phone, referring to the Central Bank of Kenya. “Currently, every time the government needs to make payments like the Eurobond payments, the shilling depreciates as people inflate the price of the dollar, but now people cannot be as aggressive as they were.”

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