The Central Bank of Kenya has projected cash sent by Kenyans living and working in the US to rebound from the Sh16 billion fall in the year through April, citing falling inflation and unemployment rate in the world’s biggest economy.
Diaspora remittances from the US, which account for nearly 60 percent of the inflows into Kenya, have been under pressure in the past year as the world’s foremost economy battled the highest price growth in more than 40 years.
Official data, based on cash sent through formal channels, indicate the cash wired by Kenyans in the US contracted to $2.29 billion (Sh316.79 billion under prevailing foreign exchange rates) in the year through April compared with $2.41 billion (Sh332.90 billion) in the prior year.
The 4.84 percent, or $116.39 million (Sh16.12 billion), came at a time the US battled the runaway cost-of-living crisis which pushed up the cost of rent, medical care as well as prices of cars and car insurance.
That squeezed earnings by workers, reducing the disposable income that Kenyans in that country tap to help families and dependents back in Kenya.
CBK governor Patrick Njoroge, who will leave office later this month after serving a maximum eight-year term, however, sees signs of a turnaround in the coming months.
“There has been a slowdown in some of the remittances coming in particularly because the diaspora that are sending money back home have their own concerns about inflation and cost of living,” Dr Njoroge told an online press briefing last week.
“But unemployment particularly in the US has come down to historic levels. We expect our diaspora will get better-paying jobs or salaries. This will impact on their wage bill and, therefore, they will have more capacity to provide payment to their families et cetera.”
Inflation in the US in April fell to 4.9 percent, marking the first time the annualized cost of living measure dropped below the five percent mark since April 2021.
The unemployment rate, on the other hand, stood at 3.4 percent in April, matching a 50-year low seen in January.
Kenyans in the US have been the main drivers of diaspora remittances into Kenya over the years.
The remittances, for instance, grew 29.06 percent in the year through April 2022 and 40.97 percent to $1.86 billion in the prior year, the CBK data shows.
The thinning inflows from the US, which account for about 58 percent of the total inflows, have seen overall diaspora receipts for the first quarter of the year fall for the first time in 23 years.
Kenyans in foreign countries historically appear to send in more cash to support families and friends during times of economic crises or slowdown, inflows which also provide a buffer for the shilling against major international currencies, particularly the US dollar.
For example, the remittances in the pandemic year of 2020 defied projections of a sharp fall by analysts, including those from the World Bank Group, to grow Sh44.18 billion or 15.49 percent to Sh329.41 billion compared with 2019.
The inflows have since 2015 remained the largest source of foreign cash flows into Kenya ahead of tourists, foreign direct investments (FDIs) and leading agricultural exports such as horticulture and tea.
The growth of diaspora remittances has, nonetheless, been hit by the elevated cost of living in the developed countries in the past year, driven by higher energy, food and rent prices which ate into the disposable income of households.
Remittances from developed countries which were not hit as hard by global inflation, exacerbated by Russia’s brutal war in Ukraine, have continued to grow, the CBK data shows.
For example, inflows from Saudi Arabia grew 44.68 percent to $331.45 million in the year through April. That growth of inflows lifted the Middle East’s economic powerhouse to the second position in the list of top sources of diaspora, overtaking the United Kingdom.
Diaspora remittances from Saudi Arabia have been growing at the fastest pace amongst major source countries in the aftermath of Covid pandemic shocks on household and business earnings in Kenya that left thousands of workers jobless.
With Kenyan firms remaining cautious about growing their workforce, Saudi Arabia has increasingly become an option for workers largely in the housekeeping and construction sectors.
This is despite the Middle East’s economic powerhouse increasingly gaining notoriety for the suffering of migrant labourers in the hands of employers in the Gulf region.
The largest share of the remittances into Kenya goes into supporting families at home to buy food and household goods, according to findings of the Kenya Diaspora Remittances Survey Report which was commissioned by the CBK in 2021.
“The cash is also used in offsetting medical expenses, meeting education expenses, for payment of rent and household utilities, payment for the costs associated with ceremonies, for clothing needs of the recipient and to meet farming needs,” CBK analysts wrote in the report.