WB’s Sh77 billion pushes FX cover up to 6.2 months

Foreign exchange reserves at the Central Bank of Kenya rose Sh76.4 billion last week again hitting Sh1 trillion after the Treasury drew down the proceeds of a $750 million World Bank (WB) loan approved in May.

World Bank’s vice president for Africa Hafez Ghanem last week told Bloomberg that the proceeds of the loan had been released to the government, which plans to use it for general budgetary expenditure.

The loan marked the first time in years that the World Bank put cash straight into the Treasury to be used at its discretion, as opposed to channelling funds straight into projects.

The CBK normally buys the foreign currency proceeds of external loans from the Treasury, which in turn gets the shilling equivalent of the amount for local expenditure.

“The CBK usable foreign exchange reserves remained strong at $9.765 billion (6.2 months of import cover) as at July 11. This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover and the EAC region’s convergence criteria of 4.5 months of import cover,” said CBK in the bulletin.

This is the second significant jump in forex reserves in two months as a result of a government foreign loan.

At the end of May, the reserves rose to a record $10.06 billion (Sh1.04 trillion) after the Treasury sold to CBK the dollar proceeds of the Sh210 billion Eurobond issued earlier in the month.

The hard currency pile would, however, drop in mid-June when the government settled the Sh75 billion principal amount of the five-year Eurobond issued in June 2014, plus interest on the amount and that of the $2 billion (Sh205 billion) 10-year tranche that was issued at the same time.

The additional dollars that the CBK has now secured will help in bolstering the shilling at a time it has shown a bias towards weakening — should the regulator feel that volatility is creeping in.