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Import cover in six-year low as bond cancelled


The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

Kenya’s import cover has fallen to the lowest levels in six-and-a-half years after the National Treasury cancelled more than a $1 billion sovereign bond, shrinking the country’s stock of dollar reserves.

The Central Bank of Kenya last Thursday held foreign currencies amounting to $7.74 billion (Sh919.90 billion) which can cover the country’s import needs for 4.46 months, the lowest backup since 4.44 months of cover on January 28, 2016.

The foreign exchange reserves are largely tapped for government payments like servicing external debts and essential government imports such as medicines.

The reserves, the bulk of which are in US dollars, also serve as backup funds in an unlikely emergency situation such as a depreciation of the shilling, thus giving confidence to investors.

“It is true we did not get $1.1 billion that the National Treasury had planned to borrow last fiscal year [ended June]. This is something that was obviously exogenous to us,” CBK Governor Patrick Njoroge told a press conference last Thursday.

“But we had expected that [Eurobond funds] to come as part of our reserves. I am sure there would be a sort of substitution of some kind, and so that’s not an issue.”

Kenya abandoned plans to borrow at least $1 billion (Sh118.85 billion) from international capital markets — Eurobond — in the recently ended fiscal year after interest demanded by investors doubled to about 12 percent from 6.3 percent Kenya paid a year earlier for a similar amount.

The import cover is, however, still within the target level of four months, but has fallen below the desired 4.5 months cushion recommended by the seven-nation East African Community bloc.

“We are planning when to have a buildup [of reserves because]… we have timelines for all those things stretching out to one year. During that period, we expect reserves to be adequate,” Dr Njoroge said.

“Generally, our (target) number is four months of import cover. When it will be below four months then we will be more concerned. But the 4.5 months of import cover is not a trigger. In the context of EAC, they talk about expectations which are not the same as a target that you have to hit.”

The last Thursday’s $7.740 billion (Sh919.90 billion) reserves were slightly improved from $7.727 billion (Sh918.35 billion) a week earlier, the lowest levels since $7,474 billion (Sh888.28 billion) on June 17, 2021, just before the $1 billion Eurobond was tapped.

Foreign debt such as Eurobond is one of the sources of foreign currency reserves for Kenya. In the financial year ended June, the Treasury missed the target for foreign loans and grants by 43.11 percent. This is after tapping Sh239.61 billion against a goal of Sh421.19 billion.

“In our funding for this financial year, we factored in borrowing from the international market, the Eurobond. But we realised as a result of challenges in Russia and Ukraine the cost of borrowing has gone really high,” Treasury Secretary Ukur Yatani said in June.

“Last year we borrowed at six percent, right now it stands over 12 percent and this is no longer feasible. That is why we are still exploring options to look at a number of banks that can advance us the money at a cheaper rate, a figure more or less than a figure of last year, an average of six percent.”

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