Kenya’s Import Cover Drops To Six-year Low

After the National Treasury cancelled more than a $1 billion sovereign bond, reducing the country’s dollar reserves, Kenya’s import cover decreased to its lowest levels in six and a half years. 

The Central Bank of Kenya held foreign currency reserves totaling $7.74 billion (Sh919.90 billion) as of last Thursday, the lowest backup since January 28, 2016, when 4.44 months of cover were available. 

The government mostly uses its foreign exchange reserves to make payments, such as repaying external debt and purchasing necessities like medications. 

Investors can feel secure knowing that there are reserves, the majority of which are in US dollars, in case of an unforeseeable emergency like the devaluation of the shilling.

“It is true we did not get $1.1 billion that the National Treasury had planned to borrow last fiscal year [ended June]. This is something that was obviously exogenous to us,” CBK Governor Patrick Njoroge told a press conference last Thursday.

“But we had expected that [Eurobond funds] to come as part of our reserves. I am sure there would be a sort of substitution of some kind, and so that’s not an issue.”

Kenya abandoned plans to borrow at least $1 billion (Sh118.85 billion) from international capital markets — Eurobond — in the recently ended fiscal year after interest demanded by investors doubled to about 12 percent from 6.3 percent Kenya paid a year earlier for a similar amount.

The import cover is, however, still within the target level of four months, but has fallen below the desired 4.5 months cushion recommended by the seven-nation East African Community bloc.

“We are planning when to have a buildup [of reserves because]… we have timelines for all those things stretching out to one year. During that period, we expect reserves to be adequate,” Dr Njoroge said.

“Generally, our (target) number is four months of import cover. When it will be below four months then we will be more concerned. But the 4.5 months of import cover is not a trigger. In the context of EAC, they talk about expectations which are not the same as a target that you have to hit.”

The last Thursday’s $7.740 billion (Sh919.90 billion) reserves were slightly improved from $7.727 billion (Sh918.35 billion) a week earlier, the lowest levels since $7,474 billion (Sh888.28 billion) on June 17, 2021, just before the $1 billion Eurobond was tapped.