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Dollars in the country flow out exposing the shilling

By Otiato Guguyu | Published Tue, July 18th 2017 at 00:00, Updated July 17th 2017 at 20:49 GMT +3

Worry for flagging shilling as dollar reserves dip to Sh30b

Kenya’s dollar reserves dipped by Sh30.4 billion in the last one month as companies paid dividends and the Government settled its debts.

Central Bank of Kenya (CBK) data, which gave two conflicting figures, showed that reserves dipped from either $8.262 billion (Sh858.8 billion) or $8.259 billion (Sh858.5 billion) in May 31, to $7.869 billion last week.

Dollar reserves are important in determining the ability of the central government to save the shilling from volatility and provide dollars for companies which want to import goods.

Cocktail of factors

“Dipping of reserves in June is a cyclic matter because of a cocktail of factors, including the $9 million (Sh935 million) Eurobond coupon and companies paying dividends,” said Stanbic Regional Economist Jibran Qureishi.

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If reserves fall, pressure may be exerted on the shilling, which should be a cause for worry for the country since as a net importer, it would make the cost of buying goods from outside more costly. The current reserves can support imports for up to 4.63 months, which means the country can comfortably import until November.

Yesterday, Reuters quoted the shilling at 103.85/104.05 per dollar, compared with 103.65/85 at Friday’s close due to dollar demand by banks.

Kenya’s exports fell $6 billion (Sh623 billion) in March last year to $5.7 billion (Sh592 billion) in March this year, according to the Central Bank. Imports, on the other hand, rose from $13.7 billion (Sh1.4 trillion) to $14.5 billion (Sh1.5 trillion) during the period under review.

“We have reduced exports for tea and increased imports, including food items. However, I do not think the reduction in reserves is a cause for alarm,” said Mr Qureishi. [Otiato Guguyu]