IMF team jets in for review of economy ahead of funding deal

Money Markets

The officials are seeking greater commitment to fiscal discipline, especially in view of the spending by the county governments. PHOTO | FILE 

By GEOFFREY IRUNGU

International Monetary Fund (IMF) staff last week flew in to conduct a review of economic developments ahead the board’s consideration of a new financing and policy programme next month.

The team will be in town for most of this month. According to the institution’s Article IV review, Kenya has asked for precautionary cash to underwrite unforeseen developments affecting the currency.

Under the new initiative, the IMF would set aside the cash to be used to intervene if the currency went into wild swings unlike the usual balance of payments support put in the Central Bank of Kenya (CBK) for other contingencies.

The logic of the new request by Kenya is that the economy could face risks affecting the currency as happened three years ago when the shilling sank to a historic low of Sh107 to the dollar.

Favourable outlook

According to the report, the IMF board has been encouraging stronger forex buffers, which the CBK has successfully built with nearly five months of import cover currently in place following the raising of the Sh178 billion ($2 billion) Eurobond.

“Kenya’s economic outlook is favourable, although the country remains vulnerable to exogenous shocks. To mitigate downside risks, (the IMF) directors encouraged stronger policy buffers and further structural reforms, including to strengthen the business climate and improve security conditions,” said the directors.

The officials are seeking greater commitment to fiscal discipline, especially in view of the spending by the county governments. Reports of the Controller of Budget have painted some devolved units as having questionable spending habits.

“Directors called for continued commitment to fiscal discipline in the wake of challenges emerging from the ongoing process of devolution of government responsibilities,” said the IMF report.

After the meeting to decide on whether or not to offer the precautionary facility in December, the IMF is expected back in March next year for the first review of developments relating to the facility.