Kenya’s forex reserves dip further, piles pressure on shilling

The country’s forex reserves have continued to hit new lows, driving the dollar to an official exchange rate of Sh130 and pushing up the cost of living on count of expensive imports.

Importers and manufacturers are however accessing the dollar at up to Sh144 in the commercial exchange market.

The reserves have been on a downward trend in recent months, dipping for the seventh time in a row since it breached the statutory requirement in January.

It stood at 3.92 months of import cover in the week that ended in January 27 from 4.13 as at end of January 20 this year.

Latest data by the Central Bank of Kenya shows the usable reserves further fell to $6.5 billion (Sh855.4 billion) in the week that ended March 17, bringing it down of 3.66 months of import cover.

This is below the statutory threshold of at least four months of import cover and way below the East African Community's (EAC) statutory threshold of 4.5 months of import cover.

However, the regulator maintained a brave face noting that the usable foreign exchange reserves remained adequate.

“This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover,” CBK says in its weekly bulletin.

The depletion has mainly been as a result of dollar-denominated loan repayments, low earnings as a result of reduced exports and a high import bill mainly on fuel.

Kenya has been grappling with debt repayments, which is projected to hit the Sh9.413 trillion mark as at end June this year, mainly dollar denominated.

According to the National Treasury, as at December last year, the government owed Sh4.67 trillion in external debt and Sh4.47 trillion in domestic debt, forcing it to dip into forex reserves for loan servicing in the wake of maturing foreign debts.

It still stares at the maturing Eurobond and SGR debt maturity where it is expected to repay an estimated $506.7 million (Sh63 billion).

The shilling is expected to remain weak with projections of further drops in the medium-term, amid persistent forex demand from importers, as well as the impact of rising inflation.

Terry Karanja, a senior treasury associate at AZA Finance had earlier projected the shilling to continue depreciating in the near term mainly due to the lack of rain which impact harvests and push inflation higher.

Renaissance Capital had also projected the shilling to close the month at 130 as the US dollar continues to strengthen.

Being a dividend period, the market is also expected to witness more pressure as companies seek dollars to pay shareholders.