The Central Bank of Kenya is now counting on diaspora cash as it seeks to build reserves to pay debts and service imports.
CBK Governor Patrick Njoroge said remittances jumped 41 per cent in the seven months to July and continue to grow as Kenyans abroad support the economy.
By the same time last year, remittances were $152.3 million (Sh. 15.2 billion) which means they may have hit $214.7 million (Sh. 21.4 billion) by July this year.
“There are several reasons why remittances are high. One is that those in the diaspora are still working and the economies are doing well,” Dr Njoroge said at a press briefing yesterday. He said there were also favourable sentiments towards the country’s economy and banks had created new instruments that had simplified transfers while reducing costs and time.
The governor dismissed speculation that the exponential growth in remittances was as a result of the blanket tax amnesty that absolved even corrupt proceeds to encourage repatriation.
“The issue that I do not agree with is that tax amnesty has been dramatic. We have not seen that level of inflows from tax amnesty,” said Njoroge.
With foreign exchange reserves currently standing at $8.507 billion, he said, Kenya can withstand the import bill for the next 5.6 months and even settle short-term debts that mature in the next one year.
“The metrics for import cover is four months, we are above that. Another threshold is 100 per cent rate of service to short-term debt, we are at 240 per cent. You can also measure adequacy of reserves as a ratio to broad money with a 20 per cent threshold, we are at 25 per cent,” Njoroge said.
CBK said the dollars held would continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market, not to defend the shilling but to avoid sudden strengthening or depreciation, known as volatility.
The assurance comes as CBK exuded confidence that the International Monetary Fund stand-by facility that expired this month would not significantly expose the shilling to external shocks.
Njoroge said that despite several shocks in the past, including the British vote to leave the European Union, rising interest rates in the United States that would have drawn out capital and a ravaging drought, Kenya still did not draw from the emergency fund.
Even with the current spate of trade wars and sell-off in emerging markets that has sunk the Turkish and Argentine currencies, Njoroge said the shilling had kept its ground since Kenya’s economy was diversified and resilient.
The current account deficit – difference between imports and exports – that would otherwise increase dollar demand by importers narrowed to 5.3 per cent in the 12 months to July from 5.6 per cent in June 2018.
