February diaspora remittances lift up declining forex reserves

'The drop in remittances is a clear indication of declining economic activities globally

In Summary
  • Last month's remittances were however lower compared to January 
  • The cumulative inflows in the 12 months to February 2021 totaled $3.15 billion (Sh343.4 billion) compared to $2.83 billion (Sh308.5 billion) last year
CBK Headquarters
CBK Headquarters
Image: FILE

Cash sent home by Kenyans living abroad grew by Sh41.3 billion in February compared to a similar period of last year, despite pressure from the economic knocks of the Covid-19 pandemic.

The Central Bank of Kenya (CBK) data shows that last month's remittances amounted to $260.3 million (about Sh28.4 billion) compared to $219 million about 23.4 billion), an increase of 18.9 per cent. 

Even so, the amount was much lower compared to $278.3 million (about Sh30.3 billion) sent in January.

Although CBK did not give reasons for the drop in remittance during the month under review, experts believe it is a result of global soft returning to tough Covid-19 movement restrictions as the third wave of the novel virus lingers. 

''The drop in remittances is a clear indication of declining economic activities globally. A further drop is expected as some countries consider lockdown,'' freelance money market consultant Jerry Lekum said. 

Luke Oloo, a financial and economic analyst fears that the new strain of Covid-19 may spark another round of economic uncertainties.

He, however, observes that the school fees support by Kenyans living abroad to their kins back home may have lifted January numbers. 

The cumulative inflows in the 12 months to February 2021 totalled $3.15 billion (Sh343.4 billion) compared to $2.83 billion (Sh308.5 billion) in the 12 months to February 2020, an increase of 11.4 per cent. 

The inflows have remained strong over the period despite predictions by the World Bank of 23.1 per cent fall in sub-Saharan Africa in 2020 due to the Covid-19-spurred economic crisis and lockdowns.

The projected fall was tied to expected wage cuts and loss of employment by the migrant workers, especially in Europe, the US, Middle East and China.

CBK data did not give a detailed tabulation of where remittances were channelled from. The US has been Kenya's main remittances market, accounting for over 50 per cent of the month to month inflows. 

Diaspora remittances saw a slight jump in the country's forex reserves which have been on a downwards trend, shrinking to almost regional minimal statutory levels a week ago. 

According to the apex bank, usable foreign exchange reserves remained adequate at $7.41 billion (4.55 months of import cover) as of March 18 compared to $7.351 billion or 4.52 months of import cover the previous week, almost the same as the East Africa Community’s convergence criteria of 4.5 months of import cover. 

''This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,'' CBK said. 

Diaspora remittances remain Kenya’s most significant foreign exchange source, followed by tourism, horticulture, tea, and coffee earnings.

The tourism and the agricultural export market have been hugely hampered by the Covid-19 menace. 

The improved forex reserve is good news to the country's shilling which has been sliding against the dollar at an alarming rate. CBK normally use the reserves to iron out volatilities in the global market.

Generally, the money market was relatively liquid during the week ending March 18, supported by government payments which partly offset tax receipts and issuance of securities. Commercial banks’ excess reserves stood at Sh21.6 billion in relation to the 4.25 per cent cash reserves requirement (CRR).

Open market operations remained active. The average interbank rate was 5.48 per cent on March 18 compared to 5.03 per cent on March 11.

During the week, the average number of interbank deals per day remained stable at 29, while the average value traded was Sh13.5 billion compared to Sh13.4 billion in the previous week.

The Treasury bills auction of March 18 received bids totalling Sh27.6 billion against an advertised amount of Sh24 billion, representing a performance of 115.0 per cent. Interest rates on the Treasury bills remained stable only rising marginally.

Even so, the Turnover of bonds in the domestic secondary market declined by 34 per cent during the week. 

International oil price declined during the week mainly due to inventory accumulation in the US, fears of a resurgence in new infections in Europe, and Covid-19 vaccine safety concerns. Murban oil price decreased to $66.03 per barrel on March 18 from $67.36 on March 11.