Kenya’s Forex Reserves Rose by $8.5 bn But Not Enough 

The Kenyan shilling strengthened against the dollar week ending September 10 due to a slowdown in demand for hard currency.

Kenya’s foreign exchange reserves rose by 9 percent to $8,532 million during the week ended May 15, after it received Ksh78 billion ($739 million) from the International Monetary Fund’s (IMF) Rapid Credit Facility (RCF).

As per data from the Central Bank of Kenya (CBK) the forex reserves are equivalent to 5.14 months of import cover of $723 million from the previous $7,809 million forex reserves (4.7 months of import cover).

The inflows from the IMF Rapid Credit Facility (RCF) is expected to add Kshs 78.7 billion to the forex reserves. 

This is expected to help support the shilling which depreciated by 0.8 percent against the US Dollar to close the week at Kshs 106.8, from Kshs 106.0 recorded the previous week.

“Despite this, we still expect forex reserves to continue declining with our sentiments being on the back of reduced diaspora remittances, continued investor capital outflows in the money market, and increased foreign debt repayments,” observations from Cytonn Investments.

The shilling recorded an all-time low of Kshs 107.3 against the dollar on April 30th 2020. 

“This was mostly attributable to the high dollar demand from foreigners exiting the market as they directed their funds to safer havens as well as merchandise, and energy sector importers beefing up their hard currency positions amid a slowdown in foreign dollar currency inflows,” Cytonn Investments in Currency and Interest Rates Outlook.

Cytonn has further revised its projections that the Kenyan currency would depreciate by 2.4 percent to  5.5 percent by the end of 2020 on a Year to Date (YTD) basis. The key among the reasons is the High levels of government debt that has widened Kenya’s fiscal deficit, thus making it hard for the government to access foreign debt as investors attach a high-risk premium on the country. 

Kenya’s foreign debt currently stands at Kshs 3.2 trillion with the debt to service ratio coming in at 45.2 percent in 2019, a ratio above the 30.0% recommended threshold.