Anxiety as foreign exchange reserves dip to five-month low

 

Dock workers offload sugar from a ship at the Mombasa port. Import activities have largely remained subdued over the election period. [File, Standard]

Kenya’s import cover has fallen to a five-month low, according to new Central Bank of Kenya data.

CBK, in its latest statistical bulletin released last week, said the amount of foreign exchange currency stood at $7.4 billion (Sh768 billion), equivalent to 4.9 months of import cover.

The forex cover is besides importing goods such as petroleum oil, used by CBK to buy and sell dollars in the market to cushion the shilling against volatility by balancing demand and supply.

This is the first time the foreign exchange reserves have dipped below the five-month index since March 16 this year.

The country’s forex reserves have dipped mainly due to companies paying dividends, debt repayments, and CBK’s effort to cushion the shilling from volatility.

However, subdued import activity over the election period has eased pressure on the shilling.

“The Kenya shilling exchange rate remained relatively stable against major international and regional currencies during the week ending August 10, 2017. The shilling remained unchanged against the USD (US dollar), strengthened against the sterling pound, and weakened against the euro and the Japanese yen,” said CBK.

Flows of foreign currency into the country are mostly driven by debt and remittances from Kenyans living abroad.

Kenyans in the diaspora increased the amount they sent back home by four per cent in the first three months of this year compared to last year.

Central Bank data showed that between January and March this year, diaspora remittances hit $432 million (Sh44.7 billion) compared to $415 million (Sh42.9 billion) in a similar period last year.

By March this year, Kenya had $6.9 billion (Sh710.7 billion) in forex reserves, which jumped to $7.7 billion (Sh793.1 billion) a week later when the country received the first tranche of the $800 million (Sh80 billion) syndicated loan agreement with banks including Citigroup Inc, Standard Bank Group Ltd, Standard Chartered Plc, and Rand Merchant Bank.

In April, CBK held the largest dollar reserves in the country’s history, thanks to foreign debts by the National Treasury. Analysts are worried that the country’s reserves are mostly driven by debt instead of trading activities.

Ideally, countries should sell more goods than what they import to retain dollars, yet Kenya has a negative balance of trade, meaning more dollars leave the country than come in.