IMF Inflows, Syndicated Loan To Ease Dollar Pressure

New inflows from the International Monetary Fund (IMF) and the planned issue of a syndicated loan are expected to provide some respite to the current dollar under supply.

The IMF Executive Board is expected to within the course of this month approve the disbursement of an estimated Ksh.28.6 billion ($244 million) to Kenya as part of its three-year loan program.

On its part, the government is seeking an estimated Ksh.117.4 billion ($1 billion) from a syndicated loan to plug the remainder of the 2021/2022 budget deficit before the end of June.

Combined, the Ksh.146 billion ($1.2 billion) inflows are expected to replenish the supply of dollars in the local market including bolstering the Central Bank of Kenya (CBK) official reserves.

“This inflows can help improve dollar liquidity in the market, easing off some of the deficit we are facing today,” noted Faith Atiti, a senior research economist at the NCBA Group.

External financing usually contributes to a significant source of hard currency in local markets including the funding of official reserves.

Last week, Kenya Bankers Association (KBA) Chairman John Gachora who is also NCBA’s Managing Director linked the widely reported dollar shortage to excess demand which has outstripped supply even as the availability of hard currency remains widely unchanged from historical average.

According to Gachora, the perceived dollar shortage has been occasioned by high import costs which now sees local traders part with more dollars to round-off trades.

“It means that if you were buying a bag of cement for 10 dollars, you are now required to pay 20 dollars or more for the same bag,” he said.

“When people say shortage, I say it’s no shortage because we have money (hard currency) coming in.”

The excess demand for dollars coupled with a worsening current account deficit and a reversal in capital flows including by foreign investors is expected to nevertheless sustain pressure on the Kenyan shilling.

“We do expect the premium on the dollar to hold which means a further depreciation for the Kenyan shilling in the next couple of months. I think we will only see some respite once energy prices and supply chains stabilize,” added Faith Atiti.

The CBK quoted the shilling at Ksh.117.39 against the US dollar at the close of trading on Friday and opened trading on Monday at Ksh.117.44.

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