•Governor Patrick Njoroge says reserves are adequate and enough to smooth out any volatility that may come.
•IMF and World bank disbursements expected to boost the kitty amid expected high November-December diaspora remittances.
Image: FILE
Kenya still has enough forex reserves, Central Bank of Kenya governor Patrick Njoroge has said, amid concerns they are headed to an 11-year low.
Official data shows usable foreign exchange reserves were at $7.19 billion (Sh877.3 billion) as of last week Friday, with concerns they are headed to an eight -year low.
This exposes the country to difficulties in making international payments, including imports and debt repayment, and hedging against exchange rate risks.
The reserves have fallen from $8.87 billion (Sh1.085 trillion) same period last year amid a widening current account deficit as the country continues to remain a net importer.
12 month cumulative imports to September on all the key segments of consumer, capital and intermediate goods has increased compared to last year, adding to expenditure on oil imports which hit $5.4 billion (Sh660.7 billion).
The value of intermediate goods imported, mainly raw material by manufacturers, has also increased even as the weak shilling continues to pile pressure on the reserves, which CBK has also been using to prop up the local currency.
The International Monetary Fund (IMF) has projected Kenya’s forex reserves could fall below the four-month import cover for the first time since August 2011, with the country having a 3.9 per cent import cover.
This is below the cover only 3.9 months of the country’s import needs by the end of this year, down from 4.4 months last year.
This is below the CBK’s statutory requirement of at least four months of import cover.
There is continued high demand for the dollar in the country by importers mainly in the energy sector, manufacturing and trade.
Governor Patrick Njoroge however yesterday said the reserves are adequate.
“We are not stressed. We have adequate reserves to smooth out any volatility that may come,” Njoroge told journalists during the post-Monetary Policy Committee briefing.
CBK expects reserves to increase on expected November-December diaspora remittances and the IMF loan to be disbursed in December.
The IMF staff reached a staff-level agreement a fortnight ago to disburse $433 million (Sh52.9 billion) to Kenya as part of a $2.34 billion loan approved in May last year.
About $400 million (Sh48.9 billion) is expected from the World Bank early next year amid other IMF disbursements.
“There are programmed inflows that are giving us confidence,”Njoroge said.
There is also an expected strong diaspora remittances as the year ends.
Inflows remained strong at $332.6 million (Sh40.6 billion) in October, compared to $318.0 million (Sh 38.9 billion) in September, an increase of 4.6 percent.
The cumulative inflows for the 12 months to October totaled $3.9 billion (Sh477.1 billion) compared to $3.6 billion (Sh440.4 billion) in October 2021, an increase of 10.9 percent.
The remittance inflows continue to support the current account and the foreign exchange market. The US remains the largest source of remittances into Kenya, accounting for 57.6 percent in October,” CBK notes.
The country is also approaching a high season in the tourism sector (December-March) expected to jerk dollar inflows into the country.
"With energy costs at record highs in Europe, the government must work with the private sector to package affordable holidays for those affected by cold weather,” Financial Risk Analyst Mihr Thakar notes.
Meanwhile, CBK has projected the country’s real Gross Domestic Product (GDP) will grow by 5.6 per cent this year, putting its forecast above the World Bank and IMF.
This even as the country continues to battle high inflation which hit a five-year high of 9.6 per cent in October.
World Bank has projected a 5.5 percent growth while IMF foresees a 5.3 per cent.
Growth will be supported mainly by the service sector.
There has also been robust activity in transport and storage, wholesale and retail trade, information and communication, real estate, and financial and insurance.
“The economy is expected to remain strong in the last quarter of 2022, supported by the services sector despite subdued performance in agriculture and weaker global growth,” Njoroge notes.