Kenya is looking for loans from the International Monetary Fund (IMF), the World Bank Group and rich countries to raise its foreign exchange reserves, which have fallen below the set minimum level for the first time since 2015.
The Central Bank of Kenya said yesterday that the expected inflow of foreign loans will restore import cover to a higher than target level.
This is the first time that Kenya’s reserves have fallen below four months of import cover on a daily basis since October 2015, according to data compiled by Bloomberg.
This followed the cancellation of a planned $1 billion international bond due to rising interest rates.
Central Bank of Kuwait data shows stocks of foreign currency fell 19.70 percent to $7.038 billion (Sh 858.64 billion) from $8.765 billion (Sh 1.07 trillion) at the start of the year.
At this level, foreign exchange reserves can cover the country’s import needs for 3.94 months, which is a breach of the legal cushion for four months.
“Once in a while, even with your best efforts, the number may be less than the target. We have looked ahead and expect some inflows to arrive,” Central Bank of Kuwait Governor Patrick Njoroge said at a press conference in Nairobi on Thursday, citing program and project loans expected in the coming months. Dakhla”.
The IMF is set to send $433 million (Sh52.83 billion) next month under the current 38-month, $2.34 billion budget support program signed in April 2021.
Kenya is also expected to receive Sh57.31 billion in project loans in the quarter ending in December from bilateral and multilateral lenders, according to the Treasury’s borrowing scheme.
The Treasury has also budgeted Kshs 44 billion from the World Bank’s Development Policy Operations Programme, but this is tentatively expected in the fourth quarter of this fiscal year ending in June 2023.
The last time import cap fell below target on a daily basis was on October 15, 2015, when it was 3.98 months of import cover.
Foreign exchange reserves are largely exploited for government payments such as servicing foreign debts and essential government imports such as medicines.
The reserves, which are mostly in US dollars, also serve as reserve money in the event of an unlikely emergency such as a devaluation of the shilling.
“According to our (Central Bank) law, we are supposed at all times to use our best endeavors to keep a reserve of foreign assets in a total amount of not less than four months’ worth of import cover calculated in a certain way,” Dr. He said.
The figure we give you is in relation to usable foreign exchange reserves. In this sense, it is not only about assets, but assets net of some liabilities.”
Kenya abandoned plans to borrow at least $1 billion (122 billion shillings) from international capital markets – eurobonds – in the fiscal year ending in June, hurting target dollar reserves at the Central Bank of Kuwait. Inflows have been more affected by the faster growth in imports than in exports, while expatriate remittances have slowed in recent months.
For example, spending on imports jumped 25.96 percent year-on-year to nearly Sh1.25 trillion in the half-year to June, and higher than 17.31 percent growth in export earnings to Sh434.02 billion.
The forex markets earlier in the year were suffering from a mismatch between dollar demand and supply, with importers at the time saying they were paying higher than the official exchange rates published by the Central Bank of Kuwait.
Vice President Regati Gachagua said on October 2 that large importers like oil marketers are still struggling to get enough dollars to ship essential commodities.
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