Many people in the diaspora are sending cash in dollars to people abroad. AFP PHOTO
Kenya is third in the usage of the dollar for domestic
transactions in the East African Community countries according to a
newly released report by the International Monetary Fund (IMF).
The
report shows that Uganda has the most dollarised economy in the region,
followed by Tanzania while the least dollarised is Burundi.
The latter also happens to be the smallest in terms of the annual gross domestic product in the Community.
The
IMF measures financial dollarisation in an economy to be represented by
the foreign currency deposits and loans in commercial banks.
Kenya has in the past few years kept high amounts of dollars in
reserves and has also a facility with the IMF to access up to Sh155
billion ($1.5 billion) in the case of emergency.
Currently Kenya and Uganda hold official foreign currency reserves equivalent to 4.7 and 5.1 months of imports, respectively.
The
multilateral lender has in the report recommended that countries with
big transactions in dollars also keep a bigger amount of reserves in the
same currency, indicating that Tanzania and Uganda should have dollar
amounts of not less than 4.5 months of imports.
“Given
the high level of financial dollarisation, staff recommended maintaining
international reserves at about 4.5 months of prospective imports
rather than the earlier target of four months of imports,” the IMF said
in its latest report on the Tanzanian economy, but also focusing on the
other EAC countries.
In a working paper released last
year, the IMF staff indicated that dollarisation was partly a result of
increasing remittances, where receivers lacked awareness and knowledge
of deposit insurance that would boost their confidence on using the
banking system for the deposits.
The paper noted that
many people were sending cash in dollars to people abroad without using
the formal bank channels, which would convert them into local currency
for withdrawal by the targeted customers.
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