IMF Lauds Kenya's Move to Join Pan-African Payment System

The International Monetary Fund (IMF) has commended Kenya for its decision to join the Pan-African Payments and Settlement System (Papps), viewing it as a positive step towards addressing foreign exchange challenges in emerging markets.

Kenya officially became a member of Papps on September 29, following the Central Bank's signing of the necessary documents. This move is expected to significantly enhance cross-border trade by facilitating transactions in local currencies. Papps, which was launched in 2021 and is a collaboration between the African Continental Free Trade Area Secretariat and Afrexim Bank, currently includes 10 economies: Nigeria, Ghana, Liberia, Guinea, Gambia, Sierra Leone, Djibouti, Zimbabwe, Zambia, and now Kenya. Catherine Pattillo, the IMF's deputy director for Africa, expressed optimism about the benefits of Papps, particularly in addressing foreign exchange challenges and promoting efficiency in cross-border transactions and intra-regional trade.

The IMF also emphasizes the importance for economies like Kenya to maintain a flexible foreign exchange system that can act as a shock absorber. Recent data from the Central Bank of Kenya shows a 20% depreciation of the shilling. The exchange rate between the US dollar and other currencies stands at 149 units, which is different from the rates reported in the market, reaching as high as 153 units. Many countries are facing difficulties in foreign exchange, and this is partly due to the need for adjustments in exchange rates. These adjustments can help countries that have reached the point of implementing foreign exchange rationing or restrictions, which ultimately hinder the private sector's ability to access the necessary foreign currency for operations.

This situation also negatively impacts investors' interests and, consequently, both economic growth and funding availability. African economies are particularly affected by the rapid depreciation of their local currencies and the limited accessibility of hard currency, which poses a significant challenge for servicing foreign currency-denominated debt. In Kenya alone, the external debt obligations for the current financial year amount to Sh622.5 billion ($4.17 billion), with 76.4 per cent of this consisting of redemptions, including the $2 billion Eurobond maturing in June 2024.