Forex buffer Increases on World Bank loan above 4 months’ cover

Following the receipt of a Sh139.3 billion ($1 billion) World Bank loan, Kenya’s foreign exchange reserves have increased above the necessary level of four months of import cover for the first time in nearly six months.

According to the most recent weekly Central Bank of Kenya (CBK) data, reserves have reached Sh1.049 trillion ($7.532 billion), or 4.15 months’ worth of import coverage.

The previous week, the forex buffer was Sh857 billion ($6.152 billion), or 3.62 months’ worth of import coverage.

For the first time since 2015, the cover had fallen below the four-month mark in late November of last year as a result of growing external debt service obligations during a time when the nation was unable to access external financing.

Foreign exchange reserves are used to pay back external loans and import necessities like fuel and medicine.

They also act as fallback funds when the CBK sells dollars to foreign exchange traders like banks and forex bureaus to lower volatility, such as when the shilling weakens.

The rising forex cover is anticipated to provide some relief for the weakening shilling, which this week crept closer to breaking the Sh140 barrier against the US dollar.

The World Bank approved the $1 billion (Sh139.3 billion) budget support loan for Kenya earlier this month. The fresh foreign contributions increased a syndicated loan for Sh69.7 billion ($500 million), which was partially disbursed in mid-April.

The CBK anticipates additional inflows to strengthen the dollar cover, including the IMF’s disbursement of Sh55.7 billion ($410 million) in mid-July.

“We expect about $100 million (Sh13.9 billion) from the African Development Bank and we have already received some proceeds from a syndicated loan,” CBK governor Patrick Njoroge said on May 31.