Diaspora remittances from the United States have fallen by a monthly average of three percent this year, reflecting the sharp cost of living in the world’s largest economy which has cut the disposable income available to Kenyans for support of relatives back home.
A Central Bank of Kenya (CBK) breakdown of remittances by source country shows that inflows from the US fell to $183.4 million (Sh21.9 billion) from $221.5 million (Sh26.5 billion) in December 2021.
The dip in inflows from the US is seen by analysts to be tied to the jump in US inflation to a 40-year high of 9.1 percent by the end of June, although this has since then eased back to 8.5 percent by end of July.
The rise in US prices is part of a global inflation surge following Russia’s invasion of Ukraine in February. Kenya has also not been spared, with local inflation climbing to a 61-month high in July on soaring prices of food, fuel, home equipment and appliances.
“The rise in cost of living in the US has largely contributed to the drop in remittances from that source nation,” said Churchill Ogutu.
“Furthermore — looking from the recipient perspective — the CBK survey on diaspora remittance had listed real estate investment as a major use of the remittance flow. As such, the wait-and-see attitude in the run-up to the election coupled with runaway construction costs also waded the remittance inflow towards real estate investment.”
The US is the biggest source of remittances to Kenya, accounting for 59 percent of the total sum of funds sent into the country this year.
As a result, the direction of total inflows largely mirrors the performance of the US source market.
July’s remittance figures (released by CBK last Friday) stood at $319.4 million (Sh38.2 billion), a fall of nine percent compared to the volumes of $350.56 million (Sh41.9 billion) in December 2021.
The CBK is, however, yet to give the country-by-country breakdown of the July remittance totals.
Other key source markets such as the UK, Saudi Arabia, Australia and Canada, however, defied the rising cost of living to record an increase in remittances in June, compared to their December 2021 totals.
Inflows from the UK were up by 25 percent in June to $26.8 million (Sh3.2 billion) compared to December, while Saudi Arabia remittances rose by seven percent to $24.4 million (Sh2.9 billion) in the period.
Remittances from Canada rose by 45.8 percent to Sh1.04 billion in the period, while those from Australia were up by 126 percent to $9.96 million (Sh1.19 billion), coming after the country eased some of its stringent Covid-19 restrictions measures in the course of the first half of this year.
For recipients, the depreciating shilling has softened the blow of the falling remittances from the US, allowing them to make up for the fewer dollars coming in through exchange gains when converting the hard currency to shillings for use locally.
Since the beginning of the year, the shilling has shed 5.4 percent of its value against the dollar.
This means that should the shilling have remained at January levels, July remittances would have been worth Sh36.1 billion instead of Sh38.2 billion.