Central Bank of Kenya (CBK) Governor Kamau Thugge has expressed confidence in the current level of the Kenyan shilling, currently placed as best performing globally.
Thugge said the central bank is prepared to utilize record foreign reserves to defend the currency if necessary.
The Kenyan shilling has gained 21% against the US dollar, making it the world’s best-performing currency so far in 2024, according to data from Bloomberg. The shilling now trades at Ksh.129 per dollar.
“We are fairly comfortable with the FX rate,” Governor Thugge said during an interview on the sidelines of the World Bank and International Monetary Fund (IMF) annual meetings in Washington.
He added that the CBK expects Kenya’s gross international reserves to reach $8.9 billion by the end of 2024, up $1.9 billion from the previous year. These reserves are critical in maintaining the shilling’s stability.
“We have built strong external buffers and are in a good position to handle any short-term external shocks,” Thugge said. “We will manage the exchange rate in a smooth manner, driven by economic fundamentals.”
IMF Program and Fiscal Outlook
Kenya expects $3.9 billion extended fund facility from the IMF – scheduled for October 30, 2024. Kenya requested a waiver from the IMF after missing revenue targets in the current review period.
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CBK will begin talks with the IMF about a new program once the current reviews are completed, potentially seeking additional concessional funding.
“We are aiming for as much concessional funding as possible from the IMF,” he said, though he did not specify the amount Kenya might request.
Addressing Revenue Targets and Social Discontent
The governor acknowledged the social unrest that occurred in mid-June, when thousands of young Kenyans took to the streets of Nairobi and other towns to protest against the government’s new tax proposals.
The taxes were set to be imposed on essential items such as bread, diapers, and imported wheelchair tires.
“We were overly aggressive with our revenue targets,” Thugge admitted. “Given the social disruptions, we now recognize the need for a balance between fiscal consolidation and maintaining social stability.”
According to Thugge, this would be a key consideration in discussions with the IMF for any future programs.
Eurobond Issuance and Debt Performance
Earlier this year, Kenya successfully issued a $1.5 billion Eurobond, which was used to partially repurchase notes maturing in June 2024. This helped alleviate liquidity pressures at the time. The new securities were issued at a rate of 9.75%, refinancing bonds originally sold a decade ago.
Kenyan debt has performed well in 2024, delivering an 8.5% return, compared to an average of 7% for emerging-market government bonds, according to Bloomberg data.
Despite the success of the Eurobond, Thugge ruled out the possibility of returning to international capital markets in the near future, noting that the country’s budget is fully financed for now.
