Kenya’s official foreign exchange reserves are expected to grow by $2.23 billion (Sh288 billion) by the end of this year compared to December 2023, supported by the recent disbursements from the International Monetary Fund (IMF) and higher remittance and export inflows.
Official forex reserves stood at $8.97 billion (Sh1.16 trillion) at the end of last week, as per the latest Central Bank of Kenya (CBK) figures, which represented a growth of $2.36 billion (Sh305.2 billion) since the beginning of the year.
As per the annual growth projection made by the CBK last week, the reserves are expected to settle at $8.84 billion (Sh1.14 trillion) by the end of the year. This reflects expected external debt repayments of about $150 million (Sh19.4 billion) for December.
The IMF disbursed a loan tranche of $606.1 million (Sh78.4 billion) to Kenya in the first week of November under its medium-term funding programme, which runs until next April.
Diaspora inflows have also gone up significantly this year on account of falling inflation in the West, which has had the effect of increasing disposable income for Kenyans living abroad.
Cumulative remittances for the 10 months to October 2024 were up by 18 percent to $4.08 billion (Sh527.6 billion), compared to the corresponding period last year.
As a result, the current account deficit stood at 3.8 percent of gross domestic product (GDP) in October, down from four percent in January. The CBK projects it at four percent at the end of this year.
“The projected current account deficit in 2024 is expected to be more than fully financed by capital and financial inflows, which will result in an overall balance of payment surplus of $937 million (Sh121.2 billion),” said CBK governor Kamau Thugge.
“This surplus, when we combine it with the disbursements from the IMF will allow us to build the international reserves of the Central Bank by roughly $2.23 billion.”
In addition to the proceeds of IMF loans and investment inflows, the reserves have also been boosted in recent weeks by direct dollar purchases from the market by the CBK.
The CBK adds to its dollar holdings by either buying the foreign currency proceeds of the government’s external loans or through local market purchases.
It rarely discloses details of its activity in the local forex market, however, banks that transact with the CBK in forex also do not disclose the deals publicly.
In September and October, the CBK raised its reserves by about $1.24 billion (Sh160.3 billion) largely through dollar purchases, taking advantage of increased dollar inflows and stable shilling to boost its dollar war chest.
Removing dollar liquidity from the market also helped keep the shilling stable in the forex market, where it traded at the Sh129 level despite a globally weakening dollar after the US made its first rate cut in four years on September 18.
