Bloomberg has reported that the International Monetary Fund withdrew Kenya’s access to a $1.5 billion standby loan in June.
The newswire quoted IMF country representative Jan Mikkelsen who said that adjustments that were needed to meet the targets were “insufficient and follow-up discussions on the review were postponed due to the long election period.”
Without the money, the shilling is exposed to speculators and international shocks such as the price of oil and dollar outflows.
If the shilling loses ground, Kenya’s dollar debt will increase by a similar margin, just like what happened to Ghana when the Cedi lost ground against the dollar, their debt crossed 70 percent of GDP.
The shilling faces major risks from oil price which has risen this year to $62 a barrel yet Oil Producing and Exporting Countries (OPEC) see it possibly edging to $70 a barrel. If we need more dollars to import oil, the shilling will lose ground.
The other threat is dollar outflows. Since January, foreign investors at the Nairobi Securities exchange have been net sellers of their portfolios, often cashing out in dollars.
The next couple of months will also see companies pay dividends, usually in dollars which will have pressure on the shilling.
But there is hope. Kenya Expects to bag between $1.5 billion and $3 billion in a Sovereign bond issue, this will boost the amount of dollars in CBK coffers to meet the rising demand.
CBK also has accumulated $7.2 billion in reserves which can last the country for almost four months of importation demand for dollars.
While Kenya has survived without the facility since June and can survive in the foreseeable future, the IMF loan is a show of might that CBK can intervene to keep the shilling steady.
It is also an indication of whether the Breton Woods institution has confidence in our economic story, its withdrawal shows it doesn’t.