- During the period from September 2020 and September 2021,Kenya‘s net foreign assets recorded the biggest decline by Sh87.1 billion.
- The Kenya National Bureau of Statistics reported in its third-quarter GDP report that the net foreign assets declined from Sh751.2 billion at end of September 2020 to Sh664.1 billion during the same period in 2021.
During the period from September 2020 and September 2021,Kenya‘s net foreign assets recorded the biggest decline by Sh87.1 billion. The Kenya National Bureau of Statistics reported in its third-quarter GDP report that the net foreign assets declined from Sh751.2 billion at end of September 2020 to Sh664.1 billion during the same period in 2021. This is regarded as the biggest drop in the assets which had risen from Sh30 billion in 1993 to Sh885 billion in the first half of last year. The decline in foreign assets has been attributed to a fall in CBK’s foreign currency reserves as also a decline in banks’ deposits abroad.
The development indicates that local financial institutions liquidated some of their overseas portfolios. It could impact the local currency Kenyan shilling’s value against others. A stronger shilling helps to lower the cost of imports, while a weaker shilling will lead to inflation.
Kenya has been increasingly turning to international borrowing through the issuance of dollar-denominated bonds in recent years. The debt service is viewed as an important factor in the changes in the net foreign assets. The financial institutions’ debt in foreign currency may also get inflated due to the weakening of the shilling.
Even before the onset of the Pandemic, Kenyan Shilling had depreciated to trade at 113 units to the dollar against 100 units in February 2020. The Pandemic aggravated the erosion of the currency due to a fall in exports and widespread disruption of economic activity, in sectors such as tourism and transport. The shilling lost against most major currencies including the Euro, Pound Sterling and US dollar. The KNBS reported that the economic recovery from the effects of the Covid-19 pandemic continued in the third quarter of 2021. According to KNBS the Real GDP grew by 9.9 percent in the third quarter of 2021 compared to a contraction of 2.1 percent in the same quarter of 2020.
