IMF boss’ term ends before deal on the shilling

IMF Representative to Kenya, Jan Mikkelsen. FILE PHOTO | NMG 

By OTIATO GUGUYU
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Summary

• The IMF Representative to Kenya, Jan Mikkelsen, is set to leave Nairobi in two weeks, ahead of conclusion of talks on a new dollar cover for the shilling.
• Mr Mikkelsen’s term in the country is set to end on September 13 and he will be replaced by Tobias Rasmussen.
• The macroeconomic specialist with a PhD in Economics from Arhus University has been the International Monetary Fund’s (IMF) representative in the country since 2012.

The IMF Representative to Kenya, Jan Mikkelsen, is set to leave Nairobi in two weeks, ahead of conclusion of talks on a new dollar cover for the shilling.

Mr Mikkelsen’s term in the country is set to end on September 13 and he will be replaced by Tobias Rasmussen.

The macroeconomic specialist with a PhD in Economics from Arhus University has been the International Monetary Fund’s (IMF) representative in the country since 2012.

Before the Nairobi posting he was deputy division chief in the African Department's E1 division covering Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda while heading the IMF office in South Sudan.

Mr Mikkelsen told the Business Daily that talks on the IMF facility are still ongoing, but there were no timelines as to when they were likely to be concluded.

“Kenya is still in a good position with the level of reserves so there is no urgency,” he said.

Kenya’s standby IMF cover for the shilling expired in September last year after the government failed to secure an extension of a pre-existing $989.8 million (about Sh100 billion) arrangement.

Kenyan authorities were unable to meet conditions of the multilateral lender — technically called completing a review — because the Treasury was pursuing an expansionary budget that made it impossible to, for example, cut fiscal deficits to the set targets for several consecutive years.

The government had also failed to deliver on its promise to remove statutory controls on the cost of loans as MPs rejected Treasury’s amendment proposals.

The Central Bank of Kenya (CBK) also faced an accusation of manipulating or managing the shilling, instead of letting it float freely.

A new IMF programme will still be difficult to sign without a substantive head at the Treasury where Labour Secretary Ukur Yatani is holding in an acting capacity.

Renewal of the IMF cover has been on the cards since an IMF team visited Nairobi in December last year although talks have since gone quiet, with CBK governor Patrick Njoroge insisting that Kenya has enough dollars to withstand any shocks.

The country has $9.38 billion in forex reserves, which are enough to cover the country’s exports for 5.8 months.

Bank of England governor Mark Carney has called for the replacement of the dollar as a reserve currency with digital money issued by a network of central banks that would not require countries to hoard the US currency.

Kenya’s dollars are mainly sourced from borrowing dollar-denominated loans rather than accruing the foreign currency from exports of goods and services such as tourism.

The country’ stock of foreign loans denominated mostly in dollars has increased from Sh800 billion in June 2013 to Sh2.4 trillion in June last year.

Meanwhile, Kenya’s export (goods only) earnings have increased from Sh499.7 billion in 2012 to Sh544.6 billion in June 2018 while external debt service increased from Sh31 billion in 2012 to Sh220.6 billion last year.

The external debt service to exports ratio has as a result deteriorated from 6.3 percent to 40.5 percent.