Kenyans living abroad send home the least amount in 14 months in June, perhaps taking a break to monitor activities around the Finance Bill,2024 that could have hiked transaction charges.
President William Ruto succumbed to the public uproar and completely rejected it after weeks of protests that have claimed at least 50 lives, hundreds injured and property worth billions destroyed.
The controversial law had, for instance, proposed introducing a 16 percent Value Added Tax (VAT) on telegraphic money transfer services and foreign exchange transactions.
This could have effectively made it more expensive to send money into the country.
The weekly statistical bulletin by the Central Bank of Kenya shows that remittance inflows in June 2024 hit $371.6 million (Sh47.9 billion) compared to $404.4 million (Sh52.2 billion) the previous month.
June’s inflows were the least since April last year when Kenyans in diaspora sent home $320.3 million (Sh41.3 billion) in present value.
The cumulative inflows for the 12 months to June remained steady at $4.53 billion (Sh583.4 billion) compared to $4.017 billion (Sh518.1 billion) in a similar period in 2023, an increase of 12.9 percent.
The banking regulator said the remittance inflows continue to support the current account and the foreign exchange market.
The low inflows were despite the cost of living in the United States easing in May for a second straight month, a hopeful sign that an acceleration of prices that occurred early this year may have passed.
Financial and economic experts expected Kenyans in the US to have more disposable, benefiting from lower inflation.
The US remains the largest source ofremittances to Kenya, accounting for 54 percent in June 2024.
Consumer prices excluding volatile food and energy costs — the closely watched “core” index — rose 0.2 per cent from April to May. That was down from 0.3 per cent the previous month and was the smallest increase since October.
Other top sources of remittances are Canada, the United Kingdom, Germany, Saudi Arabia, the United Arab Emirates and Australia.
The country’s forex reserves dropped to $7.4 billion (Sh954.6 billion) or 3.9 months of import cover, breaching both Kenya and East Africa’s thresholds of 4 and 4.5 months of import covers.
This was a Sh62.8 billion drop compared to $7.9 billion or 4.1 months of import cover reported the previous week.
Although the apex bank did not reveal the reasons for the drop, it is suspected that the National Treasury spent a sizable amount of US dollars in the forex reserve to clear the Eurobond debt that was due June 24.
Data by the National Treasury’s Public Debt Management Office shows the country cleared the remaining $556.97 million (Sh71.5 billion) of the $2 billion (Sh257 billion) inaugural Eurobond taken in 2014.
In February, Kenya partially retired its note and re-entered the market with a new issuance.
This saw the government receive tenders worth $1.48 billion and accept valid tenders totaling $1.44 billion.
Kenya had earlier indicated the outstanding amount would be retired through a mix of syndicated, multilateral and domestic financing.
“It is not a coincidence that forex reserves dropped despite the country reporting a year-on-year increase in both export earnings and diaspora remittances. It clearly shows that some reserves were spent on Eurobond repayment,” Economist William Kimotho told the Star.
He fears that the declining forex reserves might hurt the shilling which has been stabilizing against major international currencies.
On Friday, the local currency lost a full unit in value against the US dollar, trading 130 units against the greenback compared to 128.98 the previous week.
The country witnessed low activities in the money markets, with the Treasury bills auction of July 18 receiving bids totaling Sh21 billion against an advertised amount of Sh24 billion, representing a performance of 87.4 percent.
Interest rates on the 91-day, 182-day, and 364-day Treasury bills remained stable.
During the Treasury bond auction of July 17, the reopened 10-year and 20-year fixed-rate Treasury bonds received bids totaling Sh14.7 billion against an advertised amount of Sh30 billion, representing a performance of 48.9.
