Why strengthening shilling will slow flows from the Diaspora

Monday, February 19th, 2024 09:22 | By
shilling dollar
Kenyan shilling and US dollar. PHOTO/Facebook

Kenyans in the diaspora sent home a remarkable $412.4 million (Sh60 billion), significantly impacting both the real economy and the money market.

However, the recent resurgence of the Kenyan shilling against major world currencies now poses a threat to the pace of remittances.

According to the latest figures released by the Central Bank of Kenya (CBK) in its weekly bulletin for the period ending February 16, diaspora remittances increased by 10.7 per cent from the $372.6 million (Sh54.2 billion) received in December last year, pushing the 12-month cumulative inflows to $4.3 billion (Sh625 billion).

Total inflows

The CBK noted that Kenyans working in the United States contributed the bulk of the total inflows, amounting to Sh32.4 billion. “The US remained the largest source of remittances into Kenya, accounting for 54 per cent in January 2024,” the regulator stated.

The strengthening shilling presents a challenge to the sustainability of remittances, as it diminishes the purchasing power of recipients and the incentives for senders. As of Friday, it was trading at a commercial rate of Sh154.9 to the dollar.

Over the years, diaspora remittances have bolstered various sectors such as agriculture, real estate, and small businesses. Additionally, they have played a crucial role in boosting foreign exchange (Forex) reserves, thereby supporting the stability of the Kenyan shilling and monetary policy.

As of February 15, CBK data indicated that usable forex reserves remained adequate at $7,031 million (Sh1 trillion), equivalent to 3.8 months of import cover, maintaining CBK’s statutory requirement of at least 4 months of import cover.

CBK reported the shilling strengthened against the dollar, it exchanged at Sh153.20 compared to Sh160.09 on February 8.

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