By Jorgelina do Rosario and Joe Bavier
WASHINGTON (Reuters) – Kenya expects at least $1.2 billion in financing inflows between April and May and is in talks for new funding from the International Monetary Fund (IMF) to support falling foreign exchange reserves, its central bank governor said on Wednesday.
Like much of Africa, Kenya has been hit hard by the economic fallout from the COVID-19 pandemic, the war in Ukraine and global monetary policy tightening.
Its debt burden, compounded by a weakening local currency and international market turmoil, have led some market participants to speculate that Kenya could follow the likes of Zambia and Ghana into default, something the government rejects.
“We are not very worried because we have significant inflows coming in,” Governor Patrick Njoroge told Reuters on the sidelines of the IMF and World Bank Spring Meetings in Washington.
Kenya, along with other African frontier market nations, has been frozen out of international capital markets since early last year.
However, it expects $250 million from syndicated loans this month and a $1 billion budgetary support loan from the World Bank in May, Njoroge said.
“This compensates for the $1.2 billion we couldn’t get from the market last year.”
Foreign external reserves stood at $6.4 billion as of April 5, according to the central bank’s latest data, enough to cover 3.6 months of imports.
“Reserves have been lower than what we expected, but is this level adequate? The answer is yes,” the governor said.
Njoroge said Kenya is also seeking a new loan under the Fund’s Resilience and Sustainability Trust (RST) to help countries ensure sustainable growth.
“We have already started the work,” he said, without disclosing the loan’s potential size.
RST funds are capped at 150% of a country’s IMF quota.
DEBT AND INFLATION
A staff mission, meanwhile, will travel to Nairobi in early May to continue discussing an RST loan and for the fifth review of a $2.4 billion programme agreed in 2021, with the possibility of negotiating extra financing after the IMF temporarily expanded access limits.
“We could get an extra 163 million of special drawing rights with the disbursements of the fifth and the sixth review” of the 2021 programme, Njoroge said, referring to the unit of account for the Fund.
That would be approximately $220 million.
Tapping international debt markets has not been a problem across the board for emerging economies, but a combination of sticky high interest rates and lackluster global growth could push a number of weaker economies that are facing soaring refinancing needs into debt difficulties next year.
Njoroge said that “the government is quite relaxed about” its own $2 billion eurobond maturing in June 2024.
“The government has many options. They are keeping them close to their chest,” he said without providing further details.
Inflation, meanwhile, was expected to ease to within the target zone of 2.5% to 7.5%, he said, as weather improves, lowering prices for locally produced food crops, though the price of imported maize could impact that.
Stubbornly high inflation that provoked a larger than expected rate hike last month was largely due to high food prices.
“We feel we have a pretty good chance of inflation coming down quickly and ending up in the zone say in the next three months,” he said.
(Reporting by Jorgelina do Rosario and Joe Bavier; Editing by Josie Kao)
