IMF predicts Kenya’s forex reserves to remain under pressure
3 min read
IMF (International Monetary Fund) predicts Kenya's forex reserves to remain under pressure despite recent inflows
IMF (International Monetary Fund) predicts Kenya’s forex reserves to remain under pressure despite recent inflows.
The International Monetary Fund (IMF) anticipates that despite recent inflows, including its own Sh58.8 billion payout, Kenya’s official foreign exchange reserves will continue to be under pressure.
With the buffer forecast to close in 2023 at an equivalent of 3.3 months of import cover, the multilateral lender has essentially maintained its prediction of gross international reserves in months of import cover.
However, compared to a December 2017 forecast of a flat three-month imports cover, the projection of FX reserves represents an improvement.
IMF also anticipates that in 2024, 2025, and 2026, respectively, the reserves will only slightly increase to the equivalent of 3.5, 3.7, and 3.8 months of import cover.
The prediction, which is below the CBK’s legal obligation to have reserves of at least four months, indicates that there will be pressure on the reserves in the months leading up to 2023’s end.
According to figures from the Central Bank of Kenya (CBK), as of July 13, the country’s useable foreign exchange reserves were worth Sh1.058 trillion ($7.481 billion), or 4.09 months’ worth of import coverage.
For most of the past year, Kenya’s foreign exchange reserves have been under strain, primarily as a result of increased external debt payment expenses.
The CBK’s reserves are considered national assets and serve as a safety net to guarantee the availability of foreign currency to cover the nation’s external commitments, including imports and the payment of external debt.
The CBK claims that capital preservation is typically the main goal while managing reserves.
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In November, the reserves fell below the four monthly import cover for the first time since 2015, signaling the country’s increased risks of difficulties in managing external shocks.
In mid-February, the forex reserves touched a decade low or an equivalent of 3.8 months of import cover on rising debt repayments to bilateral and commercial lenders.
The plunge raised concerns about the country’s ability to control its currency with analysts expressing fears of Kenya’s ability to generate forex.
On Monday, CBK Governor Kamau Thugge said he expected the combination of new external financing and improving the balance of payments to help keep the foreign reserves above board.
“We will continue to access the global markets and with the current account deficit improving, we would expect a surplus (on the balance of payments). As such, we do not expect forex reserves to be below where they are now,” he said.
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