The International Monetary Fund expects a further decline in Kenya’s foreign-currency reserves next year as high borrowing costs limit access to global credit markets.
(Bloomberg) — The International Monetary Fund expects a further decline in Kenya’s foreign-currency reserves next year as high borrowing costs limit access to global credit markets.
The important buffer to short-term shocks and fending off currency depreciation is still expected to remain adequate, the IMF said in a statement on its website after approving a $447 million loan to Kenya. That’s even as the holdings have fallen below the nation’s four months’ import cover target since Nov. 23.
The lender forecasts a gradual increase in the reserves in 2024.
The tea and horticulture exporter has been hard hit by its worst drought in four decades, the Covid-19 pandemic and Russia’s war in Ukraine. The shocks have worsened its twin fiscal and external deficits and drained foreign reserves, at a time when investor confidence toward frontier market debt has eroded.
Last week Fitch Ratings cut the nation’s credit rating to B from B+ because its high debt and increase in borrowing costs limits access to global markets.
“Proactive monetary policy and exchange rate flexibility would mitigate the pressures from global shocks, supporting competitiveness, and protecting foreign-exchange reserves buffers,” the lender said.
The IMF funding will “ease pressures on official reserves,” respond to drought, and finance the nation’s budget gap, it said.
Read more: IMF Approves $447 Million for Kenya to Address Debt, Reforms
Kenya’s ongoing discussions with development partners may also positively impact fiscal financing prospects and further support reserve accumulation, the lender said.
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