International Monetary Fund ‘back-up’ credit facility unnecessary, says expert

 

Barclays Africa Group Limited Chief Economist Jeff Gable (left) with Barclays bank Kenya Managing Director Jeremy Awori (right). [Photo: Courtesy]

Kenya does not need the International Monetary Fund's precautionary credit facility that ends in March, an economist has claimed.

Jeff Gable, chief economist for Barclays Africa, said yesterday the country has sufficient foreign currency reserves to shield itself against unexpected extraneous shocks.

“I would say that the reserve position of the Central Bank of Kenya is - even in the absence of the IMF programme - more than comfortable in my mind. So that is not in of itself an issue for the shilling,” said Gable after unveiling the bank’s 2018 Kenya Economic Outlook in Nairobi.

He explained that having the facility in place, however, sends signals of preparedness to investors.

IMF is expected to make a review on whether to extend the two-year standby facilities for Kenya worth about $1.5 billion (Sh153 billion) set to expire in March.

Capital flight

The funds comprise a standby arrangement worth about $990 million (Sh109 billion) and a standby credit facility worth about $495 million (Sh50.4 billion). The money is important and helps cushion Kenyans from unforeseen economic shocks.

These include a sharp rise in oil prices, massive dollar outflows to volatile dollar exchange rate, and risks that threaten forex reserves. The shilling has generally been stable, defying the extended electioneering period and some global disturbances such as the election of United States President Donald Trump and the decision by the United Kingdom to exit the European Union.

However, recent developments in which the Federal Reserve - the US central bank - finally raised interest rates for the first time in nine years as well as Trump’s tax-cutting policies, might impact emerging and frontier markets such as Kenya badly.

This might trigger capital flight from emerging markets.