Shilling half-naked without IMF support, financial experts warn
2 months ago, 20 Sep 23:50
Kenyan shilling could drop moderately to Sh105 against the Dollar by end of this year, depicting trends in countries that lack International Monetary Fund precautionary facilities.
Renaissance Capital said this on Wednesday during its annual investor conference in Nairobi but insisted that the country has adequate forex reserve to cushion the shilling against external shocks.
Renaissance Capital global chief economist Charles Robertson said while Kenya has no urgent need for IMF’s facility that expired on September 14, global trends show currencies depreciating in countries without the funds support.
He said currency depreciations have been witnessed in Zambia, Djibouti, Pakistan and Sri Lanka which lack IMF’s support mechanism.
“Kenyan shilling has maintained stability against major currencies and has proved that it does not need IMF backing,’’ Robertson said.
He said that the Kenyan shilling, together with Angolan Kwanza, Ethiopian Birr and Equatorial Guinea’s Central African CFA Franc are among overvalued currencies in Africa by more than 20 per cent, meaning they can only grow downwards.
Financial analyst Aly-Khan Satchu commended the Central Bank of Kenya for effective foreign exchange operations that have made the Shilling one of the best performing currencies in the world.
He however warned that the external situation which was favourable has changed into a dark turbulent and in some cases even a violent World and with this the shilling is bound to slide.
“The IMF facility is an important signal and throwing away an insurance policy which was designed to protect Kenya from an exogenous situation that we have found ourselves in 2018 is a bold and many feel a singularly reckless move,’’ Satchu said.
He said that Kenya’s borrowing is set to spike particularly domestically which will bear the brunt akin to entering a perfect storm without an umbrella.
He said that diaspora remittances is what is now holding the country’s forex reserves.
“The path of least resistance is to the downside, notwithstanding the spike in inward remittances and outlier CBK forex operations. I feel that if the Shilling surpasses the 107 mark, the situation will get worse,’’ he added.
Last week, while launching budget making process for 2019/2020 and 2020/2022, Treasury Cabinet secretary Henry Rotich said that although the IMF facility has expired, Kenya is in no hurry to apply for another one since it is working towards easing dependency on precautionary arrangements.
“The IMF arrangement with Kenya has expired. The fact that we did not tap into it last year when the country experienced tough economic times caused by prolonged drought shows that we are self-reliant and can do without it,” Rotich said.
The International Monetary Fund granted Kenya the $1.5 billion (Sh150 billion) facility on March14, 2016 and secured a six-month extension in March this year to September 14.
The shilling yesterday closed at Sh 100.81 against the dollar
Category: topnews news business