EARNINGS

Diaspora remittances up as FX reserve shed Sh248 billion on weak shilling

This was the second-highest monthly receivables in 24 months since June 2018 after a high of almost Sh300 billion July last year.

In Summary
  • The amount is enough to sustain 5.7 months of import compared to 5.8 months worth of import cover last week.
  • The current account deficit narrowed to five per cent of GDP in the 12 months to June compared to 5.2 per cent of GDP in the 12 months to May.
The Central Bank of Kenya. Photo/Monicah Mwangi
The Central Bank of Kenya. Photo/Monicah Mwangi

The amount sent home by Kenyans abroad rose in June to $288.5 million (Sh31.1 billion) from $258.2 million (Sh27.8 billion) in May as most countries in the world eased coronavirus restrictions.

According to the weekly bulletin by the Central Bank of Kenya, the 12 per cent increase was driven by payments from the United States, Saudi Arabia and South Africa.

This was the second-highest monthly receivables in 24 months since June 2018 after a high of almost Sh300 billion July last year. Last month’s receivables are highest in value due to the strengthening dollar.  

It closed Friday, the shilling closed at a new low of 108.13.

The cumulative inflows in the 12 months to June totaled $2.8 billion (Sh302.4 billion) compared to $2.77 billion (Sh291.6 billion) in the 12 months to June 2019, reflecting a growth of 1.5 per cent.

Data shows the remittances from the region, which includes Canada, the United States, and Mexico, rose by Sh2.5 billion or 19.6 per cent from Sh12.76 billion ($118.71 million) in April.

This saw North America deepen its share of total remittances to 56.5 percent of the Sh27.78 billion ($258.15 million) sent to Kenya in May.

The growth in remittances and receivables from the agricultural sector especially horticulture saw the country's balance of payment narrow by 20 basis points. 

According to CBK, the current account deficit narrowed to five per cent of GDP in the 12 months to June compared to 5.2 per cent of GDP in the 12 months to May.

''This reflected lower oil imports and improvement in exports of tea, horticulture as well as remittances,'' the apex bank said in a statement. 

Despite an increase in diaspora inflows and export earnings, the usable foreign exchange reserves dropped by a whopping Sh248 billion as CBK fought to iron out exchange rate volatility that saw the shilling drop to an all-time low during the week under review.

This was the highest drop in the past two years. 

The weekly data shows reserves dropped to $9.42 billion dollars (Sh1.01 trillion) in the week ended July 24 compared to $9.66 billion (Sh1.04 trillion) the previous week at the current exchange rate. 

The amount is enough to sustain 5.7 months of import compared to 5.8 months worth of import cover last week.

''This meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,'' CBK said. 

The money market remained liquid, supported by government payments.

Commercial banks’ excess reserves stood at Sh28.2 billion in relation to the 4.25 per cent cash reserves requirement (CRR).

The average interbank rate was 2.32 percent on July 23 compared to 1.76 per cent on July 16.

The Treasury bills auction of July 23 received bids totaling Sh35.9 billion against an advertised amount of Sh24. billion, representing a performance of 149.6 percent.

The interest rate on the 91-day Treasury bill increased marginally while those of 182-day and 364-day Treasury bills decreased 

The reopened 5-year, 10-year and 15-year Treasury bonds offered at the auction of July 22 received bids worth Sh181.8 billion against an advertised amount of Sh60 billion, representing a performance of 303.0 percent.

The interest rates on all the Treasury bonds decreased compared to previous issues of similar instruments.

Generally, the turnover of bonds traded in the domestic secondary market increased by 12.7 per cent during the week under review.