The strengthening of the Kenyan shilling has shocked even the so-called “economic analysts.” The local currency seems to be pulling surprises with each passing day, humiliating the US Dollar with any little chance it gets.
Last week, the Kenya Shilling gained against the US Dollar by 5.4 percent, to close at Kshs 135.1, from Kshs 142.8 recorded the previous week.
On a year-to-date basis, the shilling has appreciated by 13.9 percent against the dollar, a contrast to the 26.8 percent depreciation recorded in 2023.
The support for the Kenyan shillings has continued to come from the diaspora remittances that are currently standing at a cumulative USD 4,330.0 mn in the 12 months to February 2024, 7.5 percent higher than the USD 4,026.0 mn recorded over the same period in 2023, which has continued to cushion the shilling against further depreciation.
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In the January 2024 diaspora remittances figures, America remained the largest source of remittances to Kenya accounting for 54.0 percent in the period.
The support is also coming from the tourism inflow receipts which came in at USD 333.9 mn in 2023, a 24.6 percent increase from USD 268.1 mn inflow receipts recorded in 2022, and owing to tourist arrivals that improved by 30.7 percent to 192,000 in the 12 months to December 2023, from 161,000 recorded during a similar period in 2022.
The shilling is however expected to remain under pressure in 2024 as a result of an ever-present current account deficit which came at 3.5% of GDP in Q3’2023 from 6.4% recorded in a similar period in 2022.
The shilling is also likely to be hit by the need for government debt servicing, which continues to put pressure on forex reserves given that 67.5% of Kenya’s external debt was US dollar-denominated as of September 2023.
At the same time, the dwindling forex reserves, currently at USD 7.0 bn (equivalent to 3.7 months of import cover), which is below the statutory requirement of maintaining at least 4.0 months of import cover will pile pressure on the shilling.
Key to note, Kenya’s forex reserves increased by 0.8 percent during the week to USD 7.0 bn from the USD 6.9 bn recorded the previous week, equivalent to 3.7 months of import cover, which remained relatively unchanged from the previous week, and remained below the statutory requirement of maintaining at least 4.0 months of import cover.
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