Remittances shield Shilling from rising global oil prices

Diaspora remittances and export earnings propped up the shilling against a spike in global oil prices and increased payment to foreign investors.

Latest official data show that inflow of dollars from Kenyans working abroad and exports earned the country $2 billion (Sh208.4 billion) in the 11 months to November 2018, erecting a buffer against a surge in oil imports and payment of foreign interests.

As a result, Kenya gained more foreign currency with the shilling’s exchange rate against the dollar remaining steady at around 101 throughout 2018.

An additional receipt of Sh75 billion from Kenyans working abroad during the period under review was enough to cover a Sh64 billion increase in oil imports.

Diaspora remittances increased by almost 40 per cent for the whole year to Sh274.2 billion in 2018 compared to Sh197.9 billion in 2017. 

Income from Kenyans working abroad has become a critical source of foreign exchange, surpassing traditional top earners such as tea and horticulture.

In fact, diaspora cash is almost catching up with total exports, which stand at $4.9 billion (Sh490 billion). As an item, remittances earned the country more than tea (Sh100 billion), cut flowers (Sh67.4 billion) and coffee (Sh21.9 billion).

The country’s total imports in the same period increased by Sh336 billion to hit Sh1.52 trillion as traders burnt dollars for critical inputs for almost every sector of the economy.

Oil imports increased by a quarter to Sh319.2 billion by November 2018 from Sh255.3 billion in the same period in 2017.

The price of a barrel of oil rallied from $67.6 (Sh6,760) in January 2018 to a peak of $84.2 (Sh8,420) in October before tapering off to $58.7 (Sh5,870) by end of November.  

Kenya’s current account balance - the sum of goods and services exported minus imports - narrowed by 8.8 per cent to a deficit of $4,653.8 million (Sh465.3 billion) in the year to November compared to a deficit of $5,106 million (Sh510.6 billion) in the year to October 2017. 

“This was driven by an increase in export of goods and services and an improvement in the secondary income account balance, particularly increased workers’ remittances, despite the increased payments to foreign investors (due to high interest payments),” said Treasury in its latest Quarterly Economic and Budgetary Review for the first half of financial year 2018/19.

Kenya’s interest repayments on debt in the first half of the current financial year increased by 67 per cent to Sh69 billion from Sh41.3 billion in the same period the previous year.

A huge chunk of Kenya’s foreign interest payment went to China and several commercial banks, which together gobbled up Sh40.6 billion in six months last year.

The Central Bank of Kenya relies on formal channels, mainly banks, for the receipt of diaspora remittances. However, there are many informal channels to send money home, including cash.