00:00Kenya is in part in D.C. to talk with the IMF about a potential new program.
00:05Give us a sense of how essential a new program is to achieving macroeconomic stability in the country.
00:13Yes. Yes, indeed. We have initiated discussions with the IMF.
00:19As you might know, the IMF, there was an IMF mission earlier in Nairobi this month.
00:24We have continued with those discussions with the intention of agreeing on a fund-supported program that will also be funded.
00:37As you know, we have made a lot of progress in terms of macroeconomic stability.
00:42Our inflation is below our target of 5%, and in fact, the core inflation is relatively low at 2.9%.
00:51The exchange rate has remained quite stable for quite actually a year, past a year, we are approaching a year and a half.
01:02Also, we've seen with the easing of our monetary policy, we've seen interest rates by commercial banks have been going down,
01:11and we've seen actually an increase in credit to the private sector from the banks.
01:16Earlier this year, in January, it was minus 2.9%.
01:20By September, it was actually 5%.
01:24And of course, in terms of growth, we've seen the resilience of the economy.
01:29The second quarter growth was about 5%, and we expect growth this year to be about 5.2%, followed by 5.5%.
01:38So, in our view, having a program supported by the IMF is critical to sustaining this macroeconomic stability
01:46by getting reforms, by ensuring that we get support from other multilateral institutions,
01:54and also by ensuring that government reduces its borrowing requirements from the domestic economy,
02:04and that will give us more space to be able to reduce interest rates
02:08and also to get the commercial banks to lower their rates and get credit going to the private sector
02:15and to grow the economy and to grow the jobs.
02:17Have you considered how much funding from the IMF is essential to maintaining that stability?
02:29Well, as you know, the limit is 600% of quotes,
02:34and I think we've already used up some 536 or some around that level.
02:40So, we don't expect huge access.
02:44We just expect normal access.
02:46And in the course of, let's say, a three-year period, of course, we'll be paying back to the IMF.
02:51That would create more space for access.
02:54But essentially, our expectation will be more normal access over the next three years.
03:00Is your expectation, potentially, that by the end of this week,
03:06you'll walk away with an agreement on a new program,
03:09or is there still a bit of time until we see that?
03:13No, I think there's still some time.
03:16As I said, this was the initial, we initiated now the discussions.
03:21Certainly, they will not end by the end of this week.
03:25That dialogue will continue.
03:27There's still some information that the IMF is expecting.
03:33So, I don't expect the discussions to be concluded by the end of this week.
03:39Governor, you've also talked, potentially, about floating a dollar-denominated bond.
03:46Is that still something you're considering?
03:48What would be the timeline for that?
03:52I think that's been overtaken by events.
03:56It's something I had talked about perhaps two and a half years ago.
04:01I think now with the platform that we have, the Dow CSD,
04:07we are able to get participation by Kenyans who are abroad.
04:11They can participate in the securities markets directly.
04:15So, at this moment in time, we really don't see the need for a dollar-denominated bond.
04:26Having said that, I think we are exploring the possibility of a diaspora bond.
04:33And, again, that may not be immediate,
04:37but that is also something that we are considering going into the near future.
04:42We've also seen, there's been a lot of discussion about some of the loans,
04:49especially for the Kenya gauge, the railway, being converted into yuan-denominated bonds.
04:55Is that something, does the central bank have enough yuan reserves to make this happen?
05:01And how exactly is this process going to play out?
05:07Well, I would say, I think one of the important achievements we have made at the central bank
05:13is really in terms of the building up of international reserves.
05:18The reserve position now is at the highest level it's ever been.
05:22We are approaching about $11 billion,
05:26and that is actually even before the disbursements of the euro bond money
05:33that we just floated a week and a half ago.
05:38And I think with that level of reserves,
05:41it's an important buffer for payment of future debt service payments.
05:48So I think going forward, we are in a position really to be able to face any debt service payments
05:56that may come our way.
05:58Of course, it will depend on the fiscal position,
06:03whether the Treasury can generate the resources that will be required
06:09from a shilling point of view to be able to buy the needed foreign exchange.
06:14But from our perspective, we believe that we have enough now,
06:17a buffer, a strong buffer for foreign exchange to be able to deal with any external debt service payments.
06:26In particular, though, the yuan bond for the railway?
06:32Yeah.
06:33I think for all kind of debt service payments, I wouldn't categorize them.
06:38But we are in a position now to be able to pay all their service payments from all creditors.
06:46Governor, last time we spoke, you also, it's speaking about the reserves.
06:50You've talked about diversifying the reserves, potentially looking into gold.
06:54Do you have an update on potential purchases of gold by the central bank?
07:00It's still an ongoing process.
07:02And we are approaching it from a two-track position.
07:08One is just to be able to diversify and buy existing gold.
07:13The other one is really to see whether there's a possibility of domestic gold purchases.
07:18And that is also an ongoing process.
07:21But we have yet to start on the actual purchases of gold.
07:25But it is our intention to be able to diversify part of our dollar holdings or foreign exchange holdings into gold.
07:36You mentioned the dollar.
07:39Does it potentially speak to a shifting away from dollar dominance, in your opinion?
07:45No, I think for us it's more a matter of really diversification.
07:54And it's not an intention to diversify away from dollars per se, but just basically to diversify our foreign exchange holdings.
08:05But if you look at the dollar, Governor, do you think we are potentially seeing a shift?
08:13Because Kenya is not the only central bank debating such matters.
08:17I wonder, as you sit at the IMF in D.C., where you think the dollar's dominance in some EMs still sits?
08:25Well, I think I can only speak for ourselves, because we do see all kinds of risks, global risks, whether it's geopolitical risk and even this geoeconomic fragmentation.
08:46And we do see a lot of risk globally, and I think it's prudent for us to be able to diversify and so as to address those risks that we see.
09:01Does the recent escalation between China and the U.S., do you worry potentially you'll see spillovers of that in your economy?
09:11Yes, of course.
09:12I think the more confrontation there is between the two, it affects the growth rates.
09:20It affects the growth rates of China and of the U.S.
09:24In our case for the U.S., we do a lot of trade with the U.S.
09:30We export a lot of even coffee and tea to the U.S.
09:35We get a lot of remittances.
09:37In fact, the U.S. is the largest source of remittances.
09:39We also get a lot of tourists from the U.S.
09:43So that escalation of tensions, if it does impact on the growth prospects for the U.S.
09:50and also for China, it definitely has a negative impact on our economy.
09:55How do you position then for that, especially considering some of the stability that you outlined at the beginning of the interview?
10:05What is it that you can do in this moment?
10:09I think suddenly we should continue to mobilize the resources domestically.
10:21And by resources, I mean both revenue but also deepening the domestic financial markets for us to be able to lend in the event that we don't get the necessary external financing,
10:35that we can access local financing without driving interest rates up.
10:42I think in addition, obviously, we need to see what we can cut in terms of our government spending.
10:48What is not productive should also be cut.
10:51But equally important is really to pivot towards the regional trading blocks.
10:59And not just regional but also, for example, the African free trade area.
11:05I think that is the direction we should go.
11:08We should diversify our trade.
11:09We should diversify our sources of investment.
11:13And I think that would mitigate the risk arising from all these global potential risks.
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