The level of foreign exchange reserves held by the Central Bank of Kenya fell by $1 billion to $7.75 billion on 31st December 2020 compared to $8.758 billion held on 3rd January 2020 according to data from the central bank.
Foreign Exchange reserves are useful in supporting the local currency when it depreciates, repaying foreign debt, and supporting an economy in crisis. Kenya holds its foreign reserves in US dollars. Other countries like Egypt hold their reserves in a variety of currencies as such; Euro, Japanese Yen, Chinese Yuan, Australian Dollar, and the US Dollar.
Kenya received a boost to its foreign currency reserves in May when the IMF disbursed a $739 million loan to help the economy cope with the negative effects of covid19.
The Central Bank of Kenya used up some of its forex reserves to support the depreciating Kenyan shilling whose value fell by 8% to KSh 109.17 per US dollar at the end of last year from KSh 101.34 per US dollar in the first week of 2020. Some of the reserves were used to settle international debt.
Despite the big fall, Kenya’s forex reserves are adequate to cover 4.76 months of import cover, which is above central bank’s statutory requirement to maintain at least 4 months of import cover and the EAC region’s requirement of 4.5 months of import cover.
Kenya’s domestic debt increased by 18% in the period under review to KSh3.48 trillion at the end of 2020, from KSh2.95 trillion at the start of the year. The country’s total public debt increased to KSh7.12 trillion on 30th September 2020 from KSh5.97 trillion in the same period in 2019, a 19% jump.