Kenya’s import cover fell to its lowest level in six and a half years after the National Treasury canceled more than $1 billion in sovereign bonds, reducing the country’s stock of dollar reserves.
The Central Bank of Kenya held foreign exchange worth $7.74 billion (919.90 billion shillings) as of Thursday, which can cover the country’s import needs for 4.46 months, the most low backup for 4.44 months of coverage on January 28, 2016.
Foreign exchange reserves are largely tapped for government payments such as external debt service and essential government imports such as medicines.
The reserves, most of which are in US dollars, also serve as a contingency fund in an unlikely emergency such as a depreciation of the shilling, giving investors confidence.
“It is true that we did not get $1.1 billion that the National Treasury planned to borrow last year [ended June]. This is something that was obviously exogenous to us,” CBK Governor Patrick Njoroge said at a press conference last Thursday.
“But we expected that [Eurobond funds] to come as part of our reserves. I’m sure there would be some sort of substitution, so that’s not a problem.
Kenya has abandoned plans to borrow at least $1 billion (118.85 billion shillings) from the international capital markets – Eurobond – in the just-ended fiscal year after the interest demanded by investors doubled to around 12% from the 6.3% that Kenya had paid a year earlier for a similar amount.
Import coverage, however, is still within the four-month target level, but has fallen below the desired cushion of 4.5 months recommended by the East African Community bloc of seven countries.
“We plan when to have a buildup [of reserves because]…we have deadlines for all these things that extend over a year. During this period, we expect reserves to be adequate,” Dr Njoroge said.
“In general, our (target) number is four months of import coverage. When it is below four months, we will be more worried. 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 goal you need to achieve. »
Reserves of $7.740 billion (919.90 billion shillings) last Thursday improved slightly from $7.727 billion (918.35 billion shillings) a week earlier, the lowest levels since 7,474 billion dollars (888.28 billion shillings) on June 17, 2021, just before the 1 dollar. billions of Eurobonds have been mined.
Foreign debt such as the Eurobond is one of the sources of foreign currency reserves for Kenya. In the year ending June, the Treasury missed the foreign loans and grants target by 43.11%. This is after tapping 239.61 billion shillings against a target of 421.19 billion shillings.
“In our financing for this financial year, we have included a loan on the international market, the Eurobond. But we realized that following challenges in Russia and Ukraine, the cost of borrowing had become very high,” Treasury Secretary Ukur Yatani said in June.
“Last year we borrowed at 6%, right now it’s over 12% and that’s not feasible anymore. That’s why we’re still exploring options to look at a number of banks that can advance us l money at a cheaper rate, a figure more or less than last year, an average of six percent.