Kenya’s foreign exchange reserves experienced a notable upswing, surging by Kes18.8 billion (approximately $117 million) within the past week.
This increase is primarily attributed to Kenya securing a loan of about Kes33.7 billion ($210 million) from the Trade Development Bank (TDB) as well as gains from diaspora inflows.
As of February 2, the Central Bank of Kenya’s weekly bulletin reported usable forex reserves standing at Kes1.15 trillion ($7,134 million), equivalent to 3.81 months of import cover.
This marks an increase from the previous week’s Kes1.13 trillion ( $7,017 million) or approximately 3.75 months of import buffer.
The loan from TDB, a key African development finance institution serving 25 member countries, is part of its mandate to raise $1 billion for Kenya’s liability management, according to Treasury Cabinet Secretary Prof Njuguna Ndung’u.
While the current 3.81 months of import cover falls slightly below the statutory requirement of four solid months and is beneath the East African Community’s (EAC) recommendation of 4.5 months, the Central Bank remains optimistic, asserting that it fulfills its statutory commitment.
Forex reserves had experienced a downward trend last year, hitting a low of 3.54 months of import cover in December, primarily due to the mounting pressure from the $2 billion Eurobond maturing in June.
Kenya’s plan for a self-imposed $300 million buyback in December faced challenges, but the government remains confident in meeting its debt obligations as global economic conditions ease.
Economic indicators showing stability
Globally, concerns about inflation in advanced economies have eased, with various indicators showing stability. The US Fed Reserve and the Bank of England kept their policy rates unchanged in the past week.
Additionally, the US dollar index weakened, and international oil prices declined due to a ceasefire proposal addressing tensions between warring Israel and Hamas.
Kenya’s bolstered forex reserves signify potential relief for importers reliant on these reserves for dollar access.
The increasing reserves also reflect growing diaspora inflows, a major foreign exchange earner. Recent data from the CBK indicates a 5.0 percent increase in remittances for December, reaching $372.6 million (Kes59.2 billion), supporting the reserves.
In 2023, Kenyans abroad sent home Kes25.9 billion, leveraging the weakening shilling, as projected by Western Union. The strengthening forex position is poised to enhance Kenya’s economic stability and resilience.