@BusinessDaily

Markets tense as Rotich drops IMF backup loan

3 months ago, 14 Sep 08:29

By: Geoffrey Irungu ...

Financial markets were tense Thursday after it emerged that the National Treasury had failed to renew the Sh100 billion ($989.8 million) standby facility with the International Monetary Fund (IMF), injecting a huge measure of uncertainty in the economy.

The tension, which came one day ahead of today’s deadline, saw the shilling open the day weaker and the Nairobi Securities Exchange’s (NSE) #ticker:NSE main index lose 30 points.

Treasury secretary Henry Rotich said Kenya would not seek an extension of the precautionary loan from the Fund, arguing that the country had kept its macroeconomic fundamentals such as inflation and currency stable over the period without drawing down on the facility.

“IMF programmes, especially standby (facilities), are short-term, with a maximum of two years. After that you are supposed to graduate and get out of it. But we can still engage and get back to it if we feel it’s necessary,” Mr Rotich said.

Market analysts, however, argued that the worst-case scenario would be a recall of the sovereign bond issues that would mean a default on existing foreign credit facilities due to the uncertainty arising from the virtual loss of IMF support.

“Expiry of the Standby Arrangement facility would have an impact on the issued sovereign debt in international markets as investors view the precautionary facility as a safety net. In the event that Kenya is not eligible, this will be deemed as a default trigger on the Eurobond,” said investment bank Genghis Capital in its update on the fixed-income markets. The original standby facility was $1.5 billion, but $500 million expired in March.

Central Bank of Kenya (CBK) data Thursday showed that the shilling had lost 0.17 per cent against the dollar, 0.30 per cent against the sterling pound and 0.33 per cent versus the euro compared to the previous day. The NSE 20-share index closed the day 30 points lower, breaching the 3000 points psychological barrier to stand at 2990.02 points.

Early morning trading data from Reuters showed the shilling breached the 101 units to the dollar mark. But the CBK immediately intervened stopping the slide. It was not possible to find out the extent of the CBK’s intervention, but this is likely to be seen in the change of the weekly record of the official foreign exchange reserves.

“Kenya’s central bank pumped in dollars into the market late in Thursday’s trading session after the shilling weakened due to the expiry of a standby loan facility with the International Monetary Fund. The shilling rose to 100.85/101.05 per dollar after the intervention from 101.02/101.22 where it was trading before the intervention. It had closed Wednesday’s session at 100.75/95,” Reuters reported.

Raymond Kipchumba, a research analyst with ABC Capital, said Kenya’s failure to reach a deal with the IMF raised the prospect of foreign Eurobond lenders recalling their cash, a move that would severely strain state coffers.

“The chance remains that with the expiry of the IMF precautionary facility without a new one being agreed on, the noteholders will recall the bonds, including the interest, which would only make things ...
Read More


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@BusinessDaily

Markets tense as Rotich drops IMF backup loan

3 months ago, 14 Sep 08:29

By: Geoffrey Irungu ...

Financial markets were tense Thursday after it emerged that the National Treasury had failed to renew the Sh100 billion ($989.8 million) standby facility with the International Monetary Fund (IMF), injecting a huge measure of uncertainty in the economy.

The tension, which came one day ahead of today’s deadline, saw the shilling open the day weaker and the Nairobi Securities Exchange’s (NSE) #ticker:NSE main index lose 30 points.

Treasury secretary Henry Rotich said Kenya would not seek an extension of the precautionary loan from the Fund, arguing that the country had kept its macroeconomic fundamentals such as inflation and currency stable over the period without drawing down on the facility.

“IMF programmes, especially standby (facilities), are short-term, with a maximum of two years. After that you are supposed to graduate and get out of it. But we can still engage and get back to it if we feel it’s necessary,” Mr Rotich said.

Market analysts, however, argued that the worst-case scenario would be a recall of the sovereign bond issues that would mean a default on existing foreign credit facilities due to the uncertainty arising from the virtual loss of IMF support.

“Expiry of the Standby Arrangement facility would have an impact on the issued sovereign debt in international markets as investors view the precautionary facility as a safety net. In the event that Kenya is not eligible, this will be deemed as a default trigger on the Eurobond,” said investment bank Genghis Capital in its update on the fixed-income markets. The original standby facility was $1.5 billion, but $500 million expired in March.

Central Bank of Kenya (CBK) data Thursday showed that the shilling had lost 0.17 per cent against the dollar, 0.30 per cent against the sterling pound and 0.33 per cent versus the euro compared to the previous day. The NSE 20-share index closed the day 30 points lower, breaching the 3000 points psychological barrier to stand at 2990.02 points.

Early morning trading data from Reuters showed the shilling breached the 101 units to the dollar mark. But the CBK immediately intervened stopping the slide. It was not possible to find out the extent of the CBK’s intervention, but this is likely to be seen in the change of the weekly record of the official foreign exchange reserves.

“Kenya’s central bank pumped in dollars into the market late in Thursday’s trading session after the shilling weakened due to the expiry of a standby loan facility with the International Monetary Fund. The shilling rose to 100.85/101.05 per dollar after the intervention from 101.02/101.22 where it was trading before the intervention. It had closed Wednesday’s session at 100.75/95,” Reuters reported.

Raymond Kipchumba, a research analyst with ABC Capital, said Kenya’s failure to reach a deal with the IMF raised the prospect of foreign Eurobond lenders recalling their cash, a move that would severely strain state coffers.

“The chance remains that with the expiry of the IMF precautionary facility without a new one being agreed on, the noteholders will recall the bonds, including the interest, which would only make things ...
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