currencies
The forex buffer rises to over 4 months of World Bank loan coverage
Saturday 10 June 2023
Central Bank of Kenya Governor Patrick Njoroge on October 27, 2022. Photo | Diana Ngella | NMG
Kenya’s foreign exchange reserves rose above the required level of four months of import coverage, the first time in nearly six months, after receiving a 139.3 billion shillings ($1 billion) loan from the World Bank.
The latest weekly data from the Central Bank of Kenya (CBK) showed reserves amounted to 1.049 trillion shillings ($7.532 billion), equivalent to 4.15 months of import coverage.
Foreign exchange reserves amounted to 857 billion shillings ($6.152 billion), or 3.62 months, to cover imports in the previous week.
The cap fell below the four-month threshold in late November last year, for the first time since 2015 due to mounting pressure from external debt servicing at a time when the country was restricted from accessing external financing.
is reading: Foreign currency reserves are dropping to a 10-year low amid debt repayments
Foreign currency reserves are used to pay off foreign loans and to pay for imports of vital commodities such as medicine and fuel from the world market.
It also acts as a reserve money in unexpected emergencies, such as a weak shilling, when the Central Bank of Kuwait sells dollars to forex dealers such as banks and forex bureaus to reduce volatility.
The rising forex cap is expected to provide some relief to the bearish paralysis, which came close to breaching the Sh140 mark against the US dollar this week.
Earlier this month, the World Bank approved a $1 billion (Sh 139.3 billion) budget support loan for Kenya. The new outflows added to a 69.7 billion shillings ($500 million) syndicated loan, which was partially disbursed in mid-April.
is reading: The World Bank agrees to support Kenya’s budget of Sh138 billion
The Central Bank of Kuwait expects more inflows, including IMF payments of 55.7 billion shillings ($410 million) in mid-July, to boost dollar cover.
Also read: Kenya gets a Sh162 billion loan from the International Monetary Fund on tax reforms
“We expect about $100 million (Sh 13.9 billion) from the African Development Bank and we have already received some proceeds from a syndicated loan,” CBK Governor Patrick Njoroge said on May 31.
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