CBK bets on new IMF, World Bank loans to rebuild foreign currency buffer

The Central Bank of Kenya (CBK) is betting on new inflows from external debt financing to rebuild its official usable foreign currency reserves.

The reserves which are largely dollar-denominated breached the statutory requirement of an equivalent of four months of import cover this week, falling to a buffer of 3.94 months.

The reserves currently stand at Ksh.860.2 billion ($7.038 billion) falling off from a peak of Ksh.1.077 trillion ($8.817) billion at the end of 2021.

Included in the program inflows are IMF’s disbursement of Ksh.52.9 billion ($433 million) expected next month from its 38-month program with Kenya.

Additionally, Kenya is in talks with the World Bank to access Ksh.91.7 billion ($750 million) from its Development Policy Operations (DPO) which would be a fifth disbursement from the facility in five years (DPO5).

“We’ve looked forward and we do expect some inflows to come in including IMF disbursements at the end of review which we expect to be completed sometime in December,” CBK Governor Dr. Patrick Njoroge said.

“The programmed inflows give us comfort that we are doing our best endeavours in this regard.”

Further to the programmed multi-lateral loans, Kenya is likely to issue a Eurobond or syndicated loan to meet its external financing requirement for the 2022/23 financial year.

Kenya partly funds its official foreign currency reserves from hard currency loans.

Having missed out on issuing a Eurobond and a syndicated loan at the end of the 2021/22 fiscal year, the official reserves saw limited inflows amidst greater outflows from external debt payments and CBK open market operations (OMOs).

Despite the breach in reserves, the CBK says the reserves continue to provide adequate cover and buffer against any short-term shocks in the foreign exchange market.

“It’s not like a trap (the breach of the lower foreign currency reserves) which is you get in, you are caught. It is not an accident,” Dr. Njoroge added.

$1=Ksh.122.22