Currencies

Forex reserves drop Sh27bn on external interest payments

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Kenya's forex reserves held at the Central Bank of Kenya (CBK) fell by Sh27 billion ($246 million) in the last week of February, reflecting interest payments on Kenya’s external commercial loans.
  • CBK said in its markets bulletin for last week that the reserves stood at $7.359 billion (Sh807.28 billion) as at March 4, down from $7.605 billion (Sh834.27 billion) as at February 25.

Kenya's forex reserves held at the Central Bank of Kenya (CBK) fell by Sh27 billion ($246 million) in the last week of February, reflecting interest payments on Kenya’s external commercial loans.

CBK said in its markets bulletin for last week that the reserves stood at $7.359 billion (Sh807.28 billion) as at March 4, down from $7.605 billion (Sh834.27 billion) as at February 25.

The government’s external payment obligations are drawn from the CBK reserves, with interest payments on Kenya’s external debt stock of Sh3.79 trillion being one of the major payment items due to the sizeable portion of the loans taken up on commercial terms.

The forex reserves are now the equivalent of 4.52 months of import cover, hovering just above the EAC required minimum.

“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,” said CBK in its bulletin.

CBK does not, however disclose the finer details of payments from the reserves in the bulletins.

Interest payments on Kenya’s second Eurobond, which was contracted on February 22, 2018, fall due in the last week of the month.

The $2 billion loan was issued in two equal tranches of 10 years at a coupon of 7.25 per cent and 30 years at a coupon of 8.25 per cent.

It therefore attracts interest worth $155 million annually (Sh17 billion), payable in two instalments of $77.5 million (Sh8.5 billion) each in February and August.

The government is also servicing a nine-year $1.25 billion syndicated loan that was taken up in February 2019 for refinancing purposes, with its interest also paid semi-annually.

The loan was taken up at a cost of the six-month Libor (currently at 0.2 percent) plus a 6.95 per cent margin, which means that the Treasury was effectively expected to pay around $44.7 million (Sh4.9 billion) in half yearly interest to the lenders last month.

Other payments made by CBK from the reserves include those for government supplies from external sources, and also in sales of dollars to the market when the regulator is warding off exchange rate volatility.