World bank, IMF loans to buff up forex reserves – CBK Governor
NAIROBI, Kenya, March 30 – The Central Bank of Kenya(CBK) is banking on loans from the World Bank, IMF, and other commercial partners to buff up the country’s forex reserves that have remained in breach of the four months import cover requirement since mid-January.
Speaking during the post-Monetary Policy Meeting on Thursday, CBK Governor Patrick Njoroge said the country is expecting USD 200 million in short order from a commercial partner and USD 1 billion from the World bank by the end of April, noting that these inflows will buff the country’s reserves.
He added that the country is also expecting more than USD600 million from the International Monetary Fund(IMF) under its Extended Fund Facility and Extended Credit Facility by End of June.
The CBK boss noted that the IMF inflows will be scaled up after the Fund temporarily changed its policy or a one-year period, to allow countries to have higher access to funds to support emerging markets and developing economies such as Kenya amid the tough economic times.
The country’s foreign exchange reserves stood at USD6.5billion, 3.66 months of import cover as at March 23.
The reserves are in breach of the CBK Act (Section 26) which requires that CBK “at all times use its best endeavours to maintain a reserve of external assets at an aggregate amount of not less than the value of four months’ imports as recorded and averaged for the last three preceding years.
They are also in breach of the EAC Monetary Union Protocol, where members to attain and maintain a reserve cover of 4.5 months of imports” calculated in line with the CBK Act.
The reserves were last above the four-month requirement on January 19 when they stood at USD7.3billion.
Even so, the CBK maintained that the reserves are adequate.
Njoroge noted that the reserves have remained below the requirement of four months import cover because there is a period the country was not receiving significant inflows.
“We have had a period where we have not been receiving significant inflows to the government, which is how we accumulate the reserves,” he said.
Njoroge noted that the government has now sorted the requirements for the loans and now the inflows should be coming in, with the forex reserves expected to be in a healthy position in the next two months.
Global ratings firm Fitch Ratings in a recent publication said the decline in Kenya’s official foreign-exchange reserves highlights mounting external liquidity strains.
“Our decision to downgrade Kenya’s rating to ‘B’, from ‘B+’ in December 2022 reflected its persistent fiscal and external deficits, relatively high debt, deteriorating external liquidity, and high external financing costs, which presently constrain access to international capital markets,” said Fitch.
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