Kenyan Treasury Says Economy Can Wait to Draw From IMF Loan

Kenyan Treasury Secretary Henry Rotich said he isn’t anticipating a major economic shock that would cause the government to draw right away on an almost $688 million loan from the International Monetary Fund.

The one-year credit line approved on Monday will support government-led economic reforms, from reducing poverty and strengthening banking oversight to modernizing monetary policy, and help the country deal with a range of possible disturbances originating from outside its borders, according to the IMF.

“The IMF loan is an insurance facility, which we wanted and have got,” said Rotich. “We will only draw from it when real shocks happen. Right now, we don’t see any real shocks that can impact on our balance of payments.”

Falling oil prices and favorable weather for food production are helping contain inflation in East Africa’s largest economy, even as the currency has depreciated almost 6 percent since the start of last year. The shilling has weakened as the country’s key tourism revenue declined following a spate of gun and grenade attacks blamed on Islamist militants, which sparked foreign travel warnings and scared off holidaymakers.

The precautionary loan and the policy terms attached to it will help put investors’ minds at ease, Razia Khan, head of Africa macroeconomic research with Standard Chartered Plc in London, said in e-mailed responses to questions on Tuesday.

“The fact that Kenya has an agreement in place with the IMF should serve as an additional safeguard for investors, who require assurance that Kenya will embark on a relatively conservative policy path,” Khan said.

Robust Markets

Kenyan markets are robust enough to adapt to European quantitative easing or a slow rise in interest rates in the U.S., which may drive funds out of riskier emerging markets, Rotich said by phone on Tuesday from the capital, Nairobi.

The European Central Bank’s asset-purchase program and a U.S. plan to eventually tighten monetary policy “will be gradual, so we don’t see a financial risk as a result,” he said.

The IMF in December 2013 released the final installment of its previous $750 million loan program with Kenya, which was intended to help boost the country’s foreign-currency reserves on condition authorities met budget-deficit targets and took steps to boost the investment climate and improve governance.

In September, the government increased the estimated size of the economy by a quarter to $55.2 billion for 2013 after introducing a new calculation for gross domestic product. Growth is forecast by the government at 6.9 percent this year from 5.3 percent in 2014.

Kenyan annual inflation slowed for a fifth month to 5.5 percent in January, moving closer to the government’s mid-point goal of 5 percent. The currency weakened as much as 0.2 percent before trading little changed at 91.65 per dollar by 3:24 p.m. in Nairobi on Tuesday.

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