Cash in dollar accounts held by Kenyans surged to a high of Sh811 billion even as the country continued to grapple with a shortage of the greenback.
Data from the Central Bank of Kenya (CBK) by end of March shows that foreign currency deposits held by Kenyans rose by 4 per cent year-on-year to Sh780 billion. This money is not available for trading.
Even as Kenyans stockpiled dollars, data from CBK showed that commercial banks’ foreign exchange reserves (FX) - or bank’s holding of foreign currencies, especially dollars, which are available for trading - dropped by nearly a fifth to Sh482.3 billion from Sh592.6 billion in March last year.
On Tuesday, National Treasury Principal Secretary Dr Julius Muia said that while there was no shortage as reserves of foreign currencies held by CBK was not to cover close to five months of the country’s import needs, negative sentiments from manufacturers was pushing people to accumulate dollars.
Muia said that manufacturers, who have been complaining about the dollar shortage, might have started working from a premise of dollar shortage, creating panic in the foreign exchange market with people accumulating the hard currency.
“This creates an artificial shortage which is not reflecting the reality on the ground,” said Muia during the launch of the latest World Bank’s Kenya Economic Update.
The PS insisted the government has enough foreign exchange reserves to cover the import needs. “Therefore, there shouldn’t be a problem in terms of availability of the hard currency.”
Flight to safety
Churchill Ogutu, an economist, said that it is hard to unpack whether the existing dollar accounts have had an increase in deposits or the switch from the Kenya shilling to dollars.
CBK is yet to release the latest data to show the extent to which Kenyans have been stockpiling dollars.
However, in volatile times like this when the world is affected by various challenges including the Russia-Ukraine conflict and the lingering effects of Covid-19 pandemic, there is a likelihood of a flight to safety.
Investors tend to convert their money into stronger currencies like dollars or precious commodities like gold, in what is aimed at hedging against erosion of their wealth.
This in turn puts the local currency under pressure, with a lot of foreign currencies leaving than coming into the country.
It is not just Kenyans who have been converting local currencies, foreign investors have also been evacuating dollars from the economy as they move their investments to much safer assets in advanced economies.
As a result, the shilling has weakened and was trading at a historic low of 116.95 against the dollar.
There have been reports of shortage of dollars with some manufacturers such as Pwani Oil forced to temporarily shut down their operations.
Their sentiments have been backed by their lobby - the Kenya Association of Manufacturers (KAM) - which has also insisted their members have had difficulty accessing dollars.
However, the National Treasury blamed manufacturers for an artificial shortage of dollars in the foreign exchange market following their public comments.
Official reserves were highest in June last year (6.1 months of import cover), but have slowly been declining over the months to stand at 8,401 million dollars (Sh982 billion), amounting to 4.9 months of import cover. Manufacturers have said that if CBK does not intervene by making dollars available to FX traders, there will be no respite.