Strong Diaspora Remittance Inflows Support Weakening Shilling

Diaspora remittance remained strong in July to hit Ksh29.92 billion (USD277 million) in July which was a marginal decline from the Ksh31.2 billion (USD288.5 million) recorded in June 2020. CBK adds that the United Kingdom, Saudi Arabia, Qatar and Germany registered growth in the inflows while the US and South Africa’s inflows declined slightly compared to June.

CBK in the weekly bulletin notes that remittances in the seven months to July 2020 were 3.9 per cent higher than in the same period in 2019. In addition, the July 2020 inflows were 23 per cent higher than the USD225 million in July 2019. The cumulative inflow in the 12 months to July increased by 3 per cent to USD2,862 million compared to USD2,778 million in the 12 months to July 2019.

The Kenyan Wallstreet — Diaspora remittances – CBK

Diaspora remittances are likely to remain a crucial recovery tool for many countries in the Sub-Saharan Africa region given a projected decline in Foreign Direct Investment (FDI). Some of the leading recipients of remittance inflows in 2019 were Egypt (USD26,791 million), Kenya (USD2,819 million), Tunisia (USD1,912 million), DR Congo (USD1,823 million), and Zimbabwe (USD1,730).

Support Weakening Shilling

CBK expects the strong remittance inflows to support the weakening shilling that has hit record lows against the US dollar. For instance, August saw the shilling hit Ksh108.55 against the US dollar. On 18th August 2020, the Kenyan Shilling touched a new record low of 108.6 against the US Dollar.

In the post monetary policy committee (MPC) meeting on July 29, Dr Patrick Njoroge said that the Kenyan currency had depreciated by 6.3 percent against the US dollar from January to July. Since April, the onset of COVID19 restriction, the Kenyan shilling had depreciated 2.4 per cent against the US dollar to July.

A rebound in remittances will support the shilling with analysts expecting the local currency to depreciate further in the remaining months of 2020. Furthermore, usable Forex reserves have declined by USD458 million from USD9,421 million at 23 July 2020 to USD8,963 million at 27 August 2020. Declining Fx reserves threaten the Kenyan shilling ability to weather short term shocks and volatility in the exchange rate.