By Morris Aron

Remittances from the Diaspora fell to the lowest level since January raising the uncertainty bar over the direction the flow is likely to take in the coming months after the US and UK reported massive layoffs last month.

Remittances fell to just over $46,347 (Sh3.6 billion) in June since peaking at $55, 361 (Sh4.3 billion) in March.

Analysts say that if the trend is sustained in the medium to long term, sectors of the economy that rely on remittances — such as real estate, construction — and households are likely to be negatively affected.

"A good part of our business is driven by Kenyans in the Diaspora investing in property back home due to uncertainties created by the credit crunch," said Mr Frank Ireri, managing director Housing Finance.

Estimates indicate that international money transfers account for about 30 per cent of home sales, while the retail mortgage market accounts for close to 40 per cent of the sales in the upper-middle income residential property market, while the rest are cash buyers.

The job loss rate in the US hit a 26-year high of 9.5 per cent in June, and many economists say it will peak at ten per cent.

According to the US Labour department, in the 19 months since the recession started in December 2007, the total number of mass layoffs was 39,822, accounting for slightly more than four million jobs.

The story has been the same in other countries such as the UK and Germany.

Since the effects of the global credit crunch started biting, remittance figures have been on a free swing month after month making it hard to predict or plan with.

Experts say that a drop in remittances — together with tea, flower and tourism earnings — are likely to affect the level of foreign exchange reserves that the country needs to maintain.

A drop in foreign exchange reserves is likely to weaken the Kenyan shilling against major currencies leading to unfavourable trading conditions to importers.

The effect of the dropping remittances is, however, yet to be felt while CBK has maintained that with such variations are expected in an economy such as Kenya.

According to a bulletin from Central Bank on Kenya (CBK) released on Friday, official usable foreign exchange reserves stand at $3.107 billion — or 3.53 months of imports — on June 31 compared with $3.288 billion or 4.57 months of imports on July 31, last year.

"We are bound to witness the seasonal variations on import cover and it should not be any thing to worry about," said Professor Njuguna Ndung’u CBK governor.

The shilling has remained firm against major currencies with traders predicting it will maintain the trend in the coming weeks as dollar inflows firm up with tea and tourism earnings.

The strength of the shilling is cushioned further after CBK bought $8 million to shore up its reserves.