Flexible Exchange Rate Set to Pull Out Kenya from Current Economy Shocks-IMF

The International Monetary Fund (IMF) says a flexible exchange rate will help Kenya insulate its economy from the external shocks facing its local currency, at a time it is trading at record lows, choking supply chains.

The shilling hit a new record low trading against the dollar after it weakened to 117.04 on Friday signalling a continued rally in prices of imported commodities like fuel and cooking oil.

The weakened Kenya shilling has prompted fears that the depreciation could further feed into consumer prices.

The Kenyan economy has demonstrated notable resilience in very difficult circumstances. In this context, a flexible exchange rate is an important shock absorber,” an IMF spokesman as quoted by Business Daily.

The current continued weakening has hit manufacturers who have raised the alarm on the dollar shortage and cited a struggle to settle payments to oversee suppliers on time.

CBK governor Patrick Njoroge recently underplayed the level of depreciation and disputed claims on the constraints in dollar supply.

However, on Friday the IMF said it will continue to offer financial support for Kenya through its regularly reviewed Extended Fund Facility and Extended Credit Facility programmes agreed with Kenya previously.

The IMF added that Kenya has not applied for a short-term liquidity line created in 2020 to help member countries with strong fundamentals deal with the new coronavirus pandemic.

“The IMF is supporting Kenya under the ongoing EFF/ECF arrangements. At the next review, which is expected to be completed this summer, Kenya would have access to about $244 million (Sh28.5 billion). No request has been made for any access under the SLL and the SLL is not designed to run concurrently with other IMF-supported programs.” said the IMF.

Kenya Association of Manufacturers (KAM) in April said their members had faced strained relations with suppliers due to dollar liquidity in the market, at a time competition for raw materials has intensified globally due to rising demand amid lingering supply chain constraints.

Read also; CBDCs Could Foster Innovation, Reduce Transaction Costs and Improve Cross Border Payments – Central Bank Kenya Governor

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