IMF raises Kenya's debt risk a notch up
World / Africa IMF raises Kenyaâs debt risk a notch up 24 October 2018 - 23:28 Ramah Nyang A security official stands in the lobby of the International Monetary Fund headquarters in Washington, the US. Picture: REUTERS/YURI GRIPAS
Nairobi â" The International Monetary Fund (IMF) raised its assessment of the chance of Kenyaâs external debt distress to moderate from low due to increasing refinancing risks and narrower safety margins in East Africaâs biggest economy.
The Washington-based lender estimates Kenyaâs total public debt will peak at 63.2% of gross domestic product this year and gradually decline ove r the medium term. This compares with 58% in 2017 and 53.2% in 2016, when the nation ramped up infrastructure projects.
âThe higher level of debt, together with rising reliance on non-concessional borrowing, have raised fiscal vulnerabilities and increased interest payments on public debt to nearly one fifth of revenue, placing Kenya in the top quartile among its peers,â the IMF said in an e-mailed statement.Get our news and views in your inbox
It urged Kenyaâs Treasury to refinance debt using concessional loans to lengthen maturities in the coming year and limit commercial credit for projects with high social and economic returns.
While most of Kenyaâs public debt is concessional, the commercial portion has increased after the nation issued Eurobonds in 2014 and February 2018, and extended the maturity of a syndicated loan to seven years earlier this year.
External creditors hold about half of the countryâs public debt, and multilateral lenders account for about 40% of that.
The IMF report indicates Kenya is ready for another standby facility after allowing one to lapse in September, according to Jibran Qureishi, a regional economist for Stanbic Holdings Plc. Treasury Secretary Henry Rotich said earlier this month heâd meet officials from the fund to discuss a replacement arrangement.
âIf they have done this for an IMF program, to get back to the IMFâs good books, they should know that there are more hurdles ahead, including the possible repeal or at least a substantial modification of the rate-cap law, which will be increasingly difficult to do going forward,â Qureishi said by phone.
The IMF urged the central bank to allow âgreater exchange-rate flexibility,â given well-an chored inflation expectations and adequate reserves, saying this would boost the shillingâs role as a potential shock absorber.
The IMF reclassified the shilling from âfloatingâ to âother managed arrangementâ to reflect the currencyâs limited movement due to periodic central bank interventions. The currency, which has the fourth-best performance globally, is also overvalued by about 17.5%, it said.
The central bank reiterated its position on the shillingâs value, saying the currency reflects its true and fundamental value.
âOur calculations support the view that there is no fundamental misalignment reflected in our exchange rate,â it said in an emailed response to questions.
The shilling has strengthened 1.9% against the dollar this year and was little changed at 101.23 by close of trade in the capital, Nairobi. The yield on Eurobonds due in 2024 lost 3 basis points to 7.25%, after adding 6 basis points at the close of Tuesdayâs trade.
While the IMF says the shillingâs trade is controlled, the currency offers the best foreign-exchange access on the Absa Financial Markets Index when compared with markets including South Africa, Botswana and Tanzania. The country beat 19 others when it came to its reserves base relative to net portfolio flows, and has a deep and liquid interbank market, according to George Asante, Absaâs head of markets trading.