Kenya has Sh700b forex reserves to fight any Brexit fallout

CBK Governor Njuguna Ndung'u

Kenya has sufficient forex reserves to cushion it against turbulence in case of a negative outcome of today’s referendum in Britain.

Britain is voting today on whether it should stay or exit the European Union, and a vote in favour of a breakaway is expected to have ripple effects on its key trading partners across the world.

The Central Bank of Kenya (CBK) says that though the country may be hit in case the global financial markets dips, it has however built sufficient forex reserves to weather any storm from the fallout.

“The vote has introduced some noise or turbulence in the global financial markets. Depending on how it goes, it may push the global economy firmly into recession,” the CBK Governor, Dr Patrick Njoroge said at a press briefing ahead of today’s historic vote.

Njoroge said whatever the outcome of the British exit from European Union (Brexit), Kenya has about Sh560 billion ($5.6billion) in forex reserves that can cover five months of its import bill.

“We also have $1.5billion (Sh150 billion) available for us from the IMF precautionary window that we can draw from in case of need,” he said. The International Monetary Fund (IMF) more than doubled the emergency loans available for Kenya in the next two years to Sh150 billion.

This means that cumulatively, the country has more than Sh700 billion to protect itself from any external shocks.

Unlike other standard loans given by the IMF, Kenya can only access the loan if it is faced with ‘exogenous shocks that lead to an actual balance of payments need.’

Kenya’s import cover hit the lowest in September, dropping aggressively to below the three months cover threshold, as it battled the slide of the shilling. The situation became dire when the country’s re-usable foreign exchange reserves dropped below the four months import cover threshold, weakening the bank’s ability to support the shilling.

But the Central Bank has since reversed the trend after stabilizing the currency. The law obligates the CBK to at all times maintain a reserve of external assets at an aggregate amount of not less than the value of four months import as recorded and averaged for the last three preceding years.