The International Monetary Fund (IMF) has projected Kenya’s forex reserves to fall below the four-month import cover for the first time since August 2011.
In what signals tough times ahead, the IMF projects in its latest regional economic outlook for Sub-Saharan Africa that Kenya’s forex reserves—assets held on reserve by a central bank in foreign currencies—will be enough to cover only 3.9 months of the country’s import needs by the end of this year, down from 4.4 months last year.
This is below the Central Bank of Kenya’s (CBK) statutory requirement to maintain at least four months of import cover.
Should this come to pass, it will be an indictment on the CBK Governor, Dr Patrick Njoroge, who made a name for himself protecting the shilling, with some analysts accusing him of propping up the local unit, claims he has vehemently denied.
The country’s pot of foreign currencies has been declining, dropping below the desired 4.5 months import cover recommended by the East African Community (EAC) in July
IMF’s grim forecast means that the country’s problem of dollar shortage—which has been aggravated by the lingering effects of Ukraine, the lingering effects of the Covid-19 pandemic and the increase of interest rates in advanced economies—is likely to continue for the remainder of the year.
The IMF further noted that the country’s forex reserves will improve in 2023, with the Washington-based institution projecting 4.2 months of import cover.
With too many shillings chasing too few dollars, the local currency has weakened considerably against the US currency. It was trading at an average of 121.1 against the greenback on Wednesday.
Official forex at CBK stood at a decade-low of $7.3 billion (4.11 months of import cover) as of October 13.
The drop in forex is despite the increased inflow of dollars from Kenyans living and working abroad, even as export earnings from tea and coffee pick up following the lifting of the stringent measures by most governments to curb the spread of the Covid-19 pandemic.
Read also; Kenya’s Forex Reserves Fall to a 5-year Low on the Weakening Shilling.
