The Central Bank of Kenya (CBK) has revised the outlook for diaspora remittances from an annual dip of 12.3 percent to a growth of one percent, buoyed by the recovery in the last two months despite Covid-19.
CBK governor Patrick Njoroge said Thursday in a post- Monetary Policy Committee meeting brief that that the strong recovery, especially in June, shows that 12-month remittances are likely to grow by at least one percent from last year’s Sh301.2 billion ($2.796 billion).
This is a reversal from earlier projection by the financial regulator that the diaspora remittances were going to drop by 12.3 percent or Sh37 billion, which was based on fears that Kenyans living and working abroad would run into financial difficulties due to Covid-19.
“We have seen a continuation of the trend that was there (pre-Covid-19) after the dip we saw three months ago. We have revised our projection for the remittances to one percent increase,” said Dr Njoroge.
Kenya’s remittances recovered sharply in June to Sh31 billion ($288 million) -- the second highest inflow in a single month-- after the sharp dip in April as coronavirus continued to hit the world economy.
The CBK revision differs sharply with the average dip of about 20 percent that World Bank projects to hit combined remittances across the world.
The World Bank outlook is majorly pegged on the fact that Covid-19 has disrupted economic activities and sparked salary cuts and job losses across the globe.
The CBK has also revised its outlook for Kenya’s current account deficit from 5.8 percent of gross domestic product (GDP) to 5.1 percent by the end of the year, citing among other things the expected recovery in remittances and exports.
The deficit contracted by 20 basis points—from 5.2 percent in the 12-months to May to five percent in June—driven by lower oil imports and improved exports of tea and horticulture as well as the rise in remittances.
“The narrowing of current deficit portents to stability in the foreign exchange market and we expect to see this sustained,” said Dr Njoroge.
The Kenya shilling has been under pressure in recent months, depreciating by 6.3 percent against the dollar since January. The local currency touched a record low of 108.13 last week Thursday.
“This is what the market is saying and all we want to do is to minimise volatility,” said Dr Njoroge.
With forex reserves of $9.35 billion or 5.67 months import cover, CBK maintains this is adequate to deal with volatility.