- Reserves are mostly dollar-denominated and act as buffers to potential external shocks for the country.
- The reserves have been on a continued downturn sometime last year, hitting the lows of 3.54 months of import cover in December.
Kenya's forex reserves have increased by $117 million (Sh18.8 billion) in the past week, thanks to the recent loan by the Trade Development Bank (TDB) and increasing diaspora inflows.
Data by the Central Bank of Kenya shows the usable foreign exchange reserves stood at adequate at $7,134 million (Sh1.15 trillion) about 3.81 months of import cover as of February 1.
"This is from $7,017 million (Sh1.13 trillion), or just about 3.75 months of import cover, the previous week," CBK says in its weekly bulletin.
The 3.81 is slightly below the statutory requirement of at least four months of import cover and way below that of the East African Community's (EAC) 4.5 months of import cover.
The regulator, however, still maintains a brave face saying the levels meet CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover.
Reserves are mostly dollar-denominated and act as buffers to potential external shocks for the country.
The reserves have been on a continued downturn sometime last year, hitting the lows of 3.54 months of import cover in December, mainly on the back of the piling pressure of the 2024 Eurobond maturity.
Kenya was partly banking on the loan to execute a buyback plan which had been set for December but failed.
Last week, the National Treasury confirmed the Trade and Development Bank (TDB) had lent Kenya $210 million (Sh33.7 billion).
The bond has been subject to multiple shocks including the falling hard currency reserves, a steep weakening of the Kenyan shilling and revenue challenges which have raised questions about the country's ability to make the payment.
However, the government has remained confident that it will not default, with the International Monetary Fund (IMF) also saying it does not expect the country to default.
Treasury CS Njuguna Ndung’u in September last year told the National Assembly that Kenya’s public debt, which hit Sh10.19 trillion by the close of June 2023, remains feasible despite worsening global macroeconomic conditions.
The loan facility by TDB according to the CS, is part of its mandate to raise $1 billion (Sh160.6 billion) for Kenya's liability management.
He further says Kenya was supposed to receive funds in tranches of $500 million (Sh80.3 billion), but the bank has so far only delivered $210 million from its balance sheet.
Although the loan’s mandate is not fully disclosed, CBK in December said the TDB would lend Kenya $300 million to buy back a portion of the Eurobond.
Stabilising forex reserves could mean reduced pressure on importers who heavily rely on the reserves for dollar access for their imports.
The rising reserves also point to the increasing diaspora inflows which currently is the country’s major foreign exchange earner in support of the reserves.
The latest inflows data by CBK shows remittances for December increased by 5.0 per cent to $372.6 million (Sh59.2 billion) from $355.0 million (Sh56.4 billion) in November.
It is the second month after July to record the highest amount to be sent back home by Kenyans during the year.
July recorded the highest-ever amount when inflows hit $378.1 million.
For the entire year 2023, Kenyans living and working abroad increased money they sent back home by Sh25.9 billion, riding on the weakening shilling as projected by Western Union.
In its inaugural Global Money Transfer Index in March last year, the corporation projected an increase in remittances, fueled by the weakening shilling that has now hit the 160 mark against the US dollar.
“Remittance inflows reached an all-time high of $4.19 billion (Sh670 billion) in 2023, compared to $4.03 billion (Sh644.8 billion) in 2022, an increase of 4.0 percent,” CBK says.