Kenya is eyeing loans from the International Monetary Fund (IMF), the World Bank Group and rich countries to lift its foreign-exchange reserves that dipped below the set minimum level for the first time since 2015.
The Central Bank of Kenya (CBK) said yesterday that the expected flow of foreign loans would return the import cover to above the target level.
It’s the first time Kenya’s reserves have fallen to less than four months of import cover on a daily basis since October 2015, according to data compiled by Bloomberg.
This followed the cancellation of a planned $ 1 billion Eurobond because of high-interest rates.
CBK data shows the stockpile of foreign currencies has dropped 19.70 percent to $7.038 billion (Sh858.64 billion) from $8.765 billion (Sh1.07 trillion) at the beginning of the year.
At that level, the forex reserves can cover the country’s import needs for 3.94 months, a breach of the statutory four-month cushion.
“Occasionally, even with your best endeavours, the number may be lower than the target. We have looked forward and we expect some inflows to come in,” CBK Governor Patrick Njoroge told a press conference in Nairobi on Thursday, citing programme and project loans expected in coming months.
The IMF is set to wire $433 million (Sh52.83 billion) next month under the current 38-month, $2.34 billion budgetary support programme signed in April 2021.
Kenya is also expected to get Sh57.31 billion in project loans this quarter ending December from bilateral and multilateral lenders, according to the Treasury’s borrowing plan.
The Treasury has also budgeted for Sh44 billion from the World Bank’s Development Policy Operations programme, but this is initially expected in the fourth quarter of this fiscal year ending June 2023.
The last time the import coverslipped below the target on a daily basis was on October 15, 2015, when it stood at 3.98 months of import cover.
The foreign exchange reserves are largely tapped for government payments like servicing external debts and essential government imports such as medicines.
The reserves, the bulk of which are in US dollars, also serve as backup funds in an unlikely emergency situation such as a devaluation of the shilling.
“According to our (Central Bank) Act, at all times we are supposed to use our best endeavours to maintain a reserve of external assets at an aggregate amount of not less than four months of import cover calculated in a particular way,” Dr Njoroge said.
“The number that we are giving you relates to usable foreign exchange reserves. So in that sense, it’s not just the assets, it is assets net of some liabilities.”
Kenya abandoned plans to borrow at least $1 billion (Sh122 billion) from international capital markets — Eurobond — in the fiscal year ended June, hurting targeted dollar reserves at the CBK. The inflows have further been hit by faster growth in imports than exports, while diaspora remittances have slowed down in recent months.
For example, expenditure on imports bumped 25.96 percent year-on-year to nearly Sh1.25 trillion in the half-year period through June, higher growth than 17.31 percent in earnings from exports to Sh434.02 billion.
The forex markets were earlier in the year gripped with a mismatch between dollar demand and supply, with importers at the time saying they were paying higher than official exchange rates published by the CBK.
Deputy President Rigathi Gachagua said on October 2 that large importers like oil marketers were still struggling to access adequate dollars to ship essential commodities.