Kenya dollar cover up to a high of 11 months

Kenya has cut back on its planned borrowing from IMF by 7.2 percent to Sh465.4 billion.

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Kenya’s official foreign exchange reserves have climbed to an 11-month high following recent disbursements in external financing.

New data from the Central Bank of Kenya (CBK) show the largely dollar-denominated cover rose to Sh1.12 trillion ($7.885 billion) last week or an equivalent 4.31 percent to reach the highest level since late August 2022.

The rise in the official reserves has coincided with recent disbursement from external financing including the approval of Sh59 billion ($415.4 million) by the IMF.

Added to other disbursements including a Sh113.6 billion ($800 million) syndicated facility and Sh142 billion ($1 billion) from the World Bank, the recent disbursements have lifted the FX reserves above the statutory requirement of four months of import cover and closer to the threshold under the East African Community convergence criteria.

The forex reserves had remained under pressure for the best part of 2023, curtailed by rising interest rate payments on external debt and the sale of hard currency by the CBK in the open market to check the depreciation of the local currency.

The reserves for instance slipped below the four-month import cover in late November and struggled to rebound prior to disbursements from the scheduled external facilities.

In mid-May this year, the reserves had narrowed to an equivalent 3.5 months of import cover pointing to deteriorating capabilities of managing the eventuality of external shocks on balance of payments.

Despite the improved forex buffer, the IMF has projected pressure on the reserves and expects them to close the year under four months cover.

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