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Kenya’s foreign reserves have been depleting, primarily due to two reasons; repayments of bilateral and commercial loans and the Central Bank of Kenya (CBK)’s intervention to block the shilling’s depreciation against the dollar.
Kenya’s foreign reserves have been depleting, primarily due to two reasons; repayments of bilateral and commercial loans and the Central Bank of Kenya (CBK)’s intervention to block the shilling’s depreciation against the dollar. For the second time in three months, Kenya’s reserves dropped below the critical criteria of four months’ import cover.
The country’s foreign-exchange reserves have plunged to the lowest level in 88 months largely due to the huge amount of debt repayments. According to the Central Bank of Kenya, (CBK) Kenya’s current foreign reserves of $7 billion (Sh870.7 billion), are sufficient to cover 3.92 months of imports. The country’s foreign debt repayment in January was estimated at Sh63 billion ($506.7 million), according to the World Bank. The reserves fell from $ 7.38 billion, or 4.13 months of estimated imports, on January 19 and $9.62, or import cover of 5.89 months on September 5, 2021. An IMF loan of $447.39 billion to Kenya in December helped boost the reserves. A similar disbursement of a World Bank loan amounting to $750 million is expected by June which will lift Kenya’s reserves.
The shilling’s weakness is attributed to continued difficulties in dollar access. The value of the shilling has witnessed continuous erosion in value. It dipped to an average of Sh124.35 against the dollar compared to Sh113.57 a year ago. The Kenyan Shilling continued to slide despite the weakening of the US dollar. In 2022, the Kenyan shilling slumped by 9.0 percent.
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The size of the official reserves and a stable currency are crucial factors for retaining investors’ confidence. The CBK maintains that the situation is not alarming and that the country has enough reserves to smooth out any volatility.
