Kenya’s forex to hit $7.8b by next month – experts

The National Treasury will shore up its foreign exchange (Forex) reserves which is expected to stand at $7.8 billion (Sh1.1 trillion) by the end of next week, experts say.

This follows a pipeline of foreign currency loans having been lined up including from the International Monetary Fund (IMF), World Bank, Africa Export-Import Bank and syndicated loans flowing in to shore up impact market liquidity.

Coming on the back of dwindling dollar stocks that shock the economy, the move is expected to give the government breathing space to sort out the Forex crisis.

On Tuesday, the International Monetary Fund (IMF) approved Sh162.5 billion under the on going 38-month loan programme to help the next phase of the country’s Covid-19 pandemic response and a strong multi-year effort to stabilise, and also reduce debt levels relative to gross domestic product (GDP) approved in 2021.

According to Churchill Ogutu, an economist with the IC Group, Kenya expects a total of $400 million (Sh55.2 billion) in July, from the IMF program which includes the Special Drawing Rights (SDR) of about $2.43 billion (Sh335 billion at current exchange rate).

In between, Ogutu said the country will also be receiving external financial flows, having signed a $300 million (Sh41.4 billion) syndicated loan with the Cairo-based Africa Export-Import Bank. The World Bank is also expected to approve $1 billion (Sh138 billion) this Friday, with disbursement scheduled for next week, he added.

“Overall, the monies will just come to boost FX reserves....so we should see our FX reserves move to around $7.8 billion by end next week,” Ogutu said, adding that the inflows will however not shape private sector market dynamics which he expects to remain the same.

At the peak of the dollar crunch, traders had witnessed difficulties in paying for exports. With the availability, demand for the greenback is likely to ease, which will have a positive impact on the domestic money market, though Ogutu reckons that it will not change private sector market dynamics. By yesterday, the official CBK rate was $137.9 to the local currency.

“The demand and supply dynamics facing the private sector will still continue affecting the US dollar and Kenya Shilling rate even with the expected inflows,” Ogutu said.

Speaking to the Business Hub, Ronny Chokaa, an investment analyst with Genghis Capital said the fifth review of the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) to Kenya are timely, coming at a time when the government is experiencing liquidity shortfalls leading to delays in implementation of its programs, and low subscription at domestic treasury auctions. 

“While the agreement is still subject to approval by the Executive Board in July, notable wins with the agreement so far are that we got access to an augmented external finance pool than before and a 10-month extension in the repayment duration. This will give a much needed boost to our dwindling forex reserves, and support exchange rate stability over the medium-term,” Chokaa said.

However, Treasury must demonstrate stronger commitment to prudent fiscal consolidation so as to narrow the budget deficit to 4.1 per cent of GDP and lower the public debt-to-GDP ratio.

“This would imply lower recurrent and development spending budgets,” he said.