Kenya’s forex reserves rose to the highest level since September last year after the International Monetary Fund (IMF) disbursed the second part of $2.34 billion loan last week. The international lender approved the disbursement of a further Sh43.8 billion after first reviews of IMF’s arrangements with Kenya under the extended fund facility (EFF) and the extended credit facility (ECF). The new flows take Kenya’s total disbursements from the program to Sh77 billion ($714.5 million).
Proceeds from the programme are expected to be channeled to budgetary support for the remnant of the 2020-21 fiscal year which ends on June 30 and the subsequent 2021/22 financial year.
The weekly bulletin from by the Central Bank of Kenya shows that the country’s forex base rose to $8.11 billion (Sh866.7 billion) on Friday compared to $7.4 billion (791.8 billion) last week.
The country’s reserves which hit a high of $9.42 billion or 5.8 months of import cover in July last year have been on a downward trend, threatening to drop below the East Africa Community’s convergence criteria of 4.5 months of import cover.
”The usable foreign exchange reserves remained adequate at $8,114 million (4.96 months of import cover) as at June 24. This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” CBK said.
Kenya has requested IMF to modify the performance criteria on international reserves; indicative targets on tax collection and the structural benchmark on a common public sector payroll.
Apart from IMF’s loan, Kenya’s forex reserves might have been boosted by proceeds from the country’s fourth Eurobond and high diaspora remittances.
Two weeks ago, the country raised $1 billion (108 billion) debt in a new Eurobond that was oversubscribed by five fold.
The 12- year facility priced at 6.3 per cent was meant to help the country settle its due loans.
Yields on the country’s new Eurobonds declined by an average of 0.26 basis points in the week ended Friday June 25, easing repayment obligation for Kenya.
According to CBK, Kenya’s 12-year Eurobond issued on June 17, 2021 traded well in the secondary market with a yield of 6.225 per cent at close of trading on June 24 compared to the issue interest of 6.3 per cent.
”The impact of the new issue caused improvement along the rest of the Kenya Eurobond yield curve reflecting pricing success achieved at the primary issuance,”CBK said.
The yield on the 10-year Eurobond for Ghana rose marginally while that of Angola declined.
Improving diaspora remittances evidenced by a 43.8 per cent year-on-year increase to $299.3 million in April 2021, from $208.2 million recorded over the same period in 2020, is another key factor strengthening Kenya’s forex stock.
CBK data shows that remittance inflows increased to $315.8 million in May 2021, compared to $258.2 million in May 2020, representing a 22.3 per cent increase , further boosting the country’s forex reserves.
The multiple factors boosting forex reserves are expected to continue hold the shilling against other international currencies after a steep fall witnessed since April last year on economic effects of Covid-19.
The CBK data shows the Kenya Shilling remained stable against major international and regional currencies during the week ending June 24.
It exchanged at 107.77 per US dollar on June 24, compared to 107.80 per US dollar on June 17.
The strengthening of the shilling is expected to help ease importation costs, softening the cost of living as traders cut prices of basic commodities.
Kenya recorded a slight increase in May inflation rate following a rise in food and transport cost. May Inflation increased from 5.76 per cent in April to 5.87 per cent in May 2021.
The country’s data agency attributed the modest increase to higher costs of transport, food and non-alcoholic beverages.
The cost of food and non-alcoholic beverages rose by 1.26 per cent month on month and 7.36 per cent year on year.