Kenyas dollar reserves rise to a 9-month high following external funding

Kenya’s dollar reserves rose to a nine-month high of Ksh.986.7 billion last week following the receipt of recent external funding.

The observed rise in the Central Bank of Kenya (CBK) usable foreign exchange reserves are in line with the recent booking of Ksh.106.2 billion ($1 billion) and Ksh.79.5 billion ($749 million) respectively from the World Bank’s Development Program Operations (DPO) and the International Monetary Fund (IMF) Rapid Credit Facility (RCF) across May.

The jump in the dollar reserves is expected to boost Kenya’s resilience to eventual external shocks by acting as a cushioning to pressure on arising government payments and the shilling.

The reserves were last as high on August 21, 2019 and have since fallen from a number of factors including external debt refinancing and the sale of dollars by the CBK to cover the shilling from increased volatility.

The reserves are now representative of a seven-month high import cover of 5.56 months which further strengthens the balance of payment buffers.

“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,” noted the CBK.

Dollar flows from external debt represents nearly two-thirds of the CBK usable reserves and leaves the reserve bank reliant on the flows to sustain the cushioning.

Higher reserves will improve the CBK’s preparedness to respond to potential volatilities arising from the ensuing global pandemic which has left Kenya exposed to both lower foreign exchange earnings from declining exports.

To shore up the reserves, CBK has been engaging on a dollar purchase exercise from local commercial banks with a target of buying $400 million (Ksh.42.4 billion) by June 30.