Capital Markets

CBK forex reserves fall Sh44 billion

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

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Summary

  • Latest CBK data puts the usable foreign exchange reserves dropped at $8,223 million (Sh894.66 billion) as at October 22 from $8,627 million (Sh938.62 billion) recorded in September 24.
  • This also represent $88 million (Sh9.58 billion) drop from the $8,311 million (Sh904.24 billion) recorded in the previous week (October 15).

Official forex reserves held at the Central Bank of Kenya (CBK) have dropped Sh43.97billion in the last four weeks, a trend linked to the State’s increasing debt service obligations.

Latest CBK data puts the usable foreign exchange reserves dropped at $8,223 million (Sh894.66 billion) as at October 22 from $8,627 million (Sh938.62 billion) recorded in September 24.

This also represent $88 million (Sh9.58 billion) drop from the $8,311 million (Sh904.24 billion) recorded in the previous week (October 15).

“The usable foreign exchange reserves remained adequate at $8,223 million (4.99 months of import cover) as at October 22. This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” CBK stated in the weekly bulletin.

The government had accumulated the dollar reserves since March from financing from international institutions such as the World Bank, the International Monetary Fund(IMF) and Africa Development Bank (AfDB) inform of loans to cushion the country against the Covid-19 economic shocks.

The foreign reserves were likely used in debt servicing of bilateral loans, multilateral loans from World Bank’s body the International Development Association (IDA) and AfDB as well as syndicated loans.

World Bank Debtor Reporting System shows Kenya will spend a total of Sh13.12 billion ($120.569 million) in principal and interest.

The monthly debt service cost tracker shows that excluding syndicated loans figures, $19.79 million (Sh2.15 bn) will be paid to IDA, $7.43 million (Sh808.71 million) to AfDB and $13.17 million (Sh1.43 billion) to China.

“There’s roughly Sh16 billion and Sh12 billion in external debt service costs in September and October respectively which exerts pressure on forex reserves. The dip could also be attributed to servicing of syndicated loans,” Mr Churchill Ogutu, head of research at Genghis Capital noted.

The drop could also indicate use of the reserves to support the shilling amid low receipts from tourism and exports against the growing imports after the business operations resumed.