The Central Bank of Kenya (CBK) governor Patrick Njoroge has rubbished a report by the International Monetary Fund (IMF) indicating that the country has over-valued its shilling, to remain stable against the dollar.
Njoroge says that the IMF, a place he worked for 20 years, used the wrong method to come to a conclusion that the Kenyan Shilling was actually over-valued.
He says that the method used by the IMF is new and can only be used by advanced economies.
“We are the ones who are being used as a guinea pig in terms of EBA Lite methodology. That is something that obviously we do not agree with. You need to be careful of all the weaknesses of the methodology,” he says.
In October, IMF said that the local unit is 17.5 per cent over-valued, meaning that a 100 shilling note is worth Ksh83.5, and not Ksh100.
“Our own calculations support the view that there is no fundamental misalignment reflected in our exchange rate and we have also retaliated that the Kenya shilling reflects the currency’s true value,” said Njoroge.
Currently, one US dollar is going for Ksh102.5 in the local exchange rate.
In June last year, the IMF terminated Kenya’s access to a Ksh152 billion precautionary facility due to non-compliance with fiscal deficit targets. The CBK kept it a secret until February this year when the IMF officials revealed it.
The IMF had pegged a condition for access to the facility – that Kenya would reduce its fiscal deficit to less than four per cent of GDP by the fiscal year ending June 2019, but the budget financing gap has instead remained stubbornly high at 8.9 per cent.
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