Alarm as diaspora inflows drop to Sh9.3bn due to US financial woes

Kenyans in the diaspora sent home less money in August than in the previous month, mainly due to financial challenges being experienced in the US.

Remittance inflows in August 2013 stood at Sh9.3 billion ($107 million), 5.1 per cent lower than the inflows recorded in July, which amounted to Sh9.8 billion ($112.8 million). Analysts attribute this to financial challenges in the US economy, which have led to a shutdown of many government services.  

“The decline in activities in the US and subsequent decline in the number of jobs have affected many workers, some of whom remit money back home,” said financial analyst Kariithi Murimi.

August inflows, however, were 12.9 per cent higher than the Sh8.2 billion ($94.8 million) recorded in August last year.

In the 12 months to August this year, average remittance inflows increased by 10.4 per cent to Sh8.9 billion ($102.6 million) from Sh8.1 billion ($93 million) in the year to August 2012.

“The improvement reflects monthly inflows since December 2012,” said Central Bank of Kenya.

North America accounted for nearly half of the remittance inflow in August 2013, while Europe and the rest of the world accounted for 27 per cent and 25 per cent, respectively.

North America’s dominant position is a reflection of the large number of Kenyans with gainful economic activities in the region.

The month-on-month decline further dampens the outlook for the government’s foreign exchange reserves, which deteriorated for the first time in August.

Gross foreign exchange reserves deflated to Sh684.7 billion in August 2013 from Sh703.8 billion in July after rising steadily since February this year.

The US government shut down a range of services on October 1, sending hundreds of workers on unpaid leave, with uncertainty on how long the shutdown will last. There have been persistent standoffs between Democrats and Republicans that could affect the remittances going forward.

Analysts indicate that remittances for October could be worst hit as workers remain on unpaid leave, a move that is affecting consumer spending in US and economic growth.

Remittances are recognised as an important contributor to Kenya’s growth and development due to the huge sums involved. But a sustained decline could raise the risks and worsen the current account deficit.

Kenya’s current account balance has been in deficit since 2004 when the deficit stood at 0.82 per cent of gross domestic product.

The deficit widened to stand at about 10 per cent of GDP in 2012, largely reflecting a faster growth in imports of goods into the country, relative to exports.

The country has primarily been importing machinery and transport equipment, manufactured goods and oil products for industrial purposes.

The country’s bid to diversify its exports away from coffee, tea and horticulture and tourism are yet to bear fruit to match the huge import bill. Kenya also relies on diaspora remittances, foreign direct investment and portfolio inflows to shore up its foreign currency reserves.