Forex reserves up from Eurobond cash

What you need to know:

  • The reserves, which have been accumulated over the last three weeks, largely accrued from the dollar-denominated sovereign bond the government issued in June this year.
  • The financial sector stability report, however, indicates that Kenya’s foreign reserves rose from 4.4 months of import cover to 5.7 months between June 2013 and June 2014, signalling resilience against external shocks.

Kenya’s import cover has improved to almost five months following accumulation of foreign exchange reserves arising from Eurobond proceeds.

Boosted by proceeds from sale of the $2 billion (Sh176 billion) bond that was oversubscribed, the country’s reserves rose to a high of Sh658.6 billion ($7.4 billion) covering 4.85 months of imports currently, according to the Central Bank of Kenya (CBK).

Import cover denotes a country’s foreign currency reserves that can meet its import bill for a given period.

The reserves, which have been accumulated over the last three weeks, largely accrued from the dollar-denominated sovereign bond the government issued in June this year. They have risen from Sh560.7 billion ($6.3 billion) representing 4.13 months of import cover at the end of August this year.

“This represents a build-up of over $1.1 billion, largely originating from the sale of sovereign bond proceeds by government. The current level of import cover is the largest that CBK has ever attained,” the Central Bank said in a report released Thursday.

The financial sector stability report, however, indicates that Kenya’s foreign reserves rose from 4.4 months of import cover to 5.7 months between June 2013 and June 2014, signalling resilience against external shocks.

Adequate foreign currency reserves are vital in not only stabilising foreign exchange, but also providing the country with a buffer zone against macro-economic instability likely to arise from increased imports against exports.

Kenya is a net importer and depends largely on some key sectors like tourism, tea, coffee and horticulture to provide it with foreign currency to meet its import bill and stabilise the currency. Petroleum products account for the single largest import bill and have over time, piled pressure on the country’s foreign currency reserves.

In the year to June 2014, the import bill stood at $17 billion (Sh1.5 trillion) compared to $6 billion (Sh534 billion) worth of export in the same period.