Forex reserves at 88-month low as debt repayments fall due


The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG

Kenya’s foreign-exchange reserves have dropped to the lowest level in 88 months as the nation makes multi-billion shillings debt repayments, marking the second time in less than three months it is breaching the critical level of four months’ import cover.

Reserves currently stand at $7 billion (Sh870.7 billion, equivalent to 3.92 months of imports, the Central Bank of Kenya (CBK) said in its weekly bulletin last Friday.

Kenya’s reserves have been depleting partly because of repayments to bilateral and commercial lenders and the CBK’s intervention to try and slow down the shilling’s depreciation against the dollar.

The fall comes as the country is this month expected to repay foreign debts estimated at Sh63 billion ($506.7 million), according to the World Bank tracker of public debt.

The shilling has weakened to an average of Sh124.35 against the dollar compared to Sh113.57 a year ago.

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.

These reserves are used by countries to meet their international financial obligations such as paying foreign debts, influencing monetary policy and supporting the importation of critical goods.


The size of the official reserves usually projects an air of confidence and calms investors’ fears in the event they want to move their money out of a country.

While Kenya targets keeping reserves at a minimum of four months of estimated imports, the central bank has previously maintained that its fall should not cause alarm, terming the breach of the limit a ‘non-event’.

“It’s not like a trap that when you get in, you get caught. It’s not an accident that something happens when you are below that number,” CBK Governor Patrick Njoroge said on November 24.

“We still believe we have adequate reserves to smooth out any volatility. We are also doing our best endeavours to ensure we get reserves,”

He made the comments after the reserves fell to the lowest in seven years and breached the four months’ import cover on November 22.

The disbursement by the International Monetary Fund (IMF) of a Sh55.6 billion ($447.39 billion) loan to Kenya in December helped lift the reserves to an equivalent 4.22 months of import cover on the week ending December 22.

Kenya is expecting another Sh92.5 billion ($750 million) from the World Bank before the end of June, offering a boost to the reserves.

The continued weakness in the local unit is despite the waning dollar strength, which was listed as the primary source of the shilling’s 9.0 percent slump across 2022.

While major world currencies, including the Euro, Sterling Pound and Japanese Yen, have strengthened against the greenback to mirror a weaker dollar index, Kenya shilling alongside other regional currencies such as the South African rand, Ghanaian cedi and the Zambian kwacha have continued to slide.

Closer home, only the Ugandan shilling has rallied against the dollar to record year-to-date gains of 0.9 percent.

EFG Hermes Kenya Head of Equities Muathi Kilonzo has linked the shilling’s weakness to continued difficulties in dollar access.

“The shilling should be performing better but is not because there are no new dollar inflows. The local unit has weakened despite the prices of commodities coming off highs. We are seeing other emerging markets rallying but not Kenya,” he said.

In spite of the CBK playing down concerns over dollar illiquidity in the market, the IMF acknowledged the challenges even as it called for reforms to reactivate the interbank market in a report published in December.

“Difficulty in sourcing US dollars in the local market continues. Liquidity in the interbank market has dried up and shifted to the bank-client market where forex transactions are executed at a more depreciated rate,” the IMF stated.

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