Foreign currency deposits held in local commercial banks dropped by an equivalent of Sh12.3 billion between June and August, coinciding with the expiry of a tax amnesty on repatriation of assets held abroad.
Central Bank of Kenya (CBK) said in the August monthly economic indicators report released last week that the deposits stood at Sh608.2 billion at the end of August, compared to the all-time high of Sh620.5 billion in June.
Diaspora remittances have also slowed down since they hit a record Sh30 billion ($295 million) in June, standing at Sh22.8 billion in July, Sh21.8 billion in August and Sh21.85 billion in September.
“The primary driver for increased remittances in the past has been the tax amnesty on the repatriation of funds, which the government initiated in 2016 and ended in June 2019. Since June, repatriated funds are being levied 10 percent, which will continue until 2024 and has led to the recent remittance slowdown,” said global ratings agency Moody’s in a note on Monday.
Applications worth more than Sh800 billion in cash and other assets were made in the amnesty window, the Kenya Revenue Authority (KRA) said on October 1.
June marked the first time the deposits had crossed the Sh600 billion mark, continuing the trend where they peaked at the deadline of the amnesty.
Foreign currency deposits play an important role in the stabilisation of the shilling, by providing a pool of dollars to meet quick demand, thus insulating CBK from having to pump in dollars to fight volatility.
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Note: The results are not exact but very close to the actual.
