DROP

Shilling drops to a record low as forex reserves falls further

Forex reserves fell by $61 million in the week ended April 16

In Summary
  • The shilling yesterday hit an all-time high of 107.25 at 12.30PM against the greenback.
  • Kenyans living abroad sent home Sh23 billion ($218.9 million) last month, a drop from Sh26 billion sent in January.
A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017. /REUTERS
A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017. /REUTERS

Low diaspora remittance and limited activities in Kenya’s export market due to coronavirus pandemic continued to weigh down the country’s forex reserve.

According to the Central Bank of Kenya, the country’s reserve sunk further to Sh791.3 billion last week compared to Sh797.4 billion the previous week, and almost Sh100 billion lower since early March.

Forex reserves fell by $61 million in the week ended April 16. They now stand at $7.913 billion (4.78 months import cover). This is just above the EAC convergence criterion of 4.5 months import cover & CBK's statutory requirement of 4 months import cover,’’ CBK said.

 

Kenyans living abroad sent home Sh23 billion ($218.9 million) last month, a drop from Sh26 billion sent in January.

Diaspora remittances to Kenya are expected to fall to the lowest level this year, as consequences of the lockdown in Europe due to coronavirus. Last year, cash sent from abroad Stood at Sh280 billion.

The drop in the forex reserve continues to exert pressure on the shilling which continues to depreciate against the US dollar, pushing up import costs, flaring up the general cost living for consumers as traders pass down the high import bill.

The shilling yesterday hit an all-time high of 107.25 at 12.30 PM against the greenback.

Last week the Shilling remained relatively stable against major international and regional currencies, exchanging at 105.91 per US dollar on April 16 compared to 106 the previous week. 

The local currency which was in February rated as the most stable in the continent by Renaissance Capital has been losing ground against major currencies as tourism, diaspora remittance and agricultural export receipts drop due to coronavirus aftermath.  

According to Cytonn, the tourism sector which contributed approximately 1.3 per cent to Kenya’s GDP in Q3’2019, is facing hard times due to lockdowns in major economies where tourists originate. The sector is bringing in near-zero returns.

 

Flower export, which is one of the top three foreign exchange-earners has been grounded to halt by the virus. It generated Sh104 billion in sales in 2019.

Kenya has been pushing IMF to renew the $1.5 billion standby precautionary facility which expired in 2018 to help in ironing out forex volatility. Coronavirus outbreak has since slowed the progress.

The IMF team that came to the country on February 19 and left early March expressing satisfaction with the country’s fiscal progress left a ray of hope that has since withered.  

The depreciation of shilling is likely to worsen Kenya’s ability to repay the foreign debt which has since grown to Sh3.2 trillion from Sh3.1 trillion, according to the latest data by CBK.

The country’s total public debt has been updated to Sh6.3 trillion, highest ever.

On Friday, Euro-bond yields increased significantly, an indication that investors are now attaching higher risk premiums on the country due to the anticipation of slower economic growth attributable to coronavirus pandemic.

‘’Yields on Kenya’s Euro-bonds increased by an average of 57.5 basis points on Friday,’’ CBK said.

A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017. /REUTERS
A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017. /REUTERS