REMITTANCES

Lower diaspora inflows further dims weak forex reserves

In February, Kenyans abroad sent home $309.2 million (Sh39.9 billion) compared to $349.4 million (Sh45 billion)

In Summary
  • This is the lowest receipt in seven months since July last year.
  • The US remains the largest source of remittances to Kenya, accounting for 59 percent
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

Weak February diaspora remittances did little to support the country's weakening forex reserves which have since dropped to a 10-year low. 

Weekly data from the Central Bank of Kenya (CBK) shows Kenyans working abroad sent home $309.2 million (Sh39.9 billion), three per cent lower than $349.4 million (Sh45 billion) the previous month. 

This is the lowest receipt in seven months since July last year. 

Although the banking regulator did not give reasons for the decline, experts are linking it to the tough economic situation globally, with high inflation squeezing disposable income. 

Financial expert Dan Mambo says inflation has been at a 40-year high in most countries which contributes to Kenya's diaspora inflows, limiting the amount the diaspora community can send back home. 

"This situation is expected to persist in the coming months as the anticipated recession manifests. This is a blow to Kenya's weak shilling as forex reserves meant to cushion drops,'' Mambo said. 

According to the latest CBK, the inflows were, however, 23.5 per cent higher compared to CBK, the cumulative inflows for the 12 months to February 2023 totaled $4.03 billion (Sh520 billion)compared to $3.8 billion (Sh490.2 billion) in February 2022.

"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 59 percent,'' CBK said. 

Figures from the CBK show the USA contributed US$ 113.7 Million in March 2019 compared to US$ 118.3 Million in March 2020 and $ 162.6 Million in March 2021.

Data from CBK indicate that the USA contributed $ 182.4 million, accounting for 59 per cent of the amount. 

The largest source of diaspora remittances to Kenya in Africa was Tanzania, with $ 3.9 million.

It is followed by Uganda, which contributed $2.6 million in February 2022, South Africa$ 2.4 million, Malawi $ 527,000, Nigeria $508,000, Zambia $297,000, Ivory Coast $ 291,000, Egypt$ 221,000 and South Sudan $ 177,000.

In total, remittances from Africa totaled $24.1 million in February compared to $22.5 million the previous month. 

Remittances from Europe totaled $56.8 million during the period under review, with the most significant contribution coming in from the United Kingdom($ 27.9 million), followed by Germany( $8.1 Million); Switzerland($4.3 million) and Italy($ 2 million).

Others are Netherlands($1.9 million); Sweden($1.9 million); Norway($ 1.7 million); France($ 1.6 million); Belgium($ 1.3 million); Austria($ 904,000)and Others($ 4.9 million).

The amount received was quickly swallowed by diminishing forex reserve that has seen the shilling tumble to its weakest against the US dollar. 

In the weekly bulletin, the apex bank said that the Sh854 billion ($6.5 billion) in the foreign currency reserve would last over the next three months.

The regulator said that the reserves were adequate pursuant to the bank's regulations.  Kenya has breached adequacy ratios in both its threshold and that of the East Africa Community. 

Despite this, CBK insists that the sufficiency of the reserve will enable importers to continue with their business without any hindrance, this, as the dollar crisis persists. 

While CBK  quoted the shilling at 129 against the greenback on Friday, it crossed the Sh140 mark in the black market. 

Diaspora remittances are now Kenya's forex earner after overtaking tea, coffee and tourism in 2017. 

The tourism sector which used to be the second most forex earner was the worst hit by Covid-19 with sector revenues declining by 80 per cent in 2020 compared to 2019 when the country realised Sh162 billion.

Data from the Ministry of Tourism shows the tourism sector directly contributes 4.4 per cent of the Gross Domestic Product (GDP).

However, the sector is showing a great recovery with international arrivals hitting pre-covid levels.  

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