A cargo handler labels boxes of flowers for export at JKIA. PHOTO | FILE
Kenya is tomorrow expected to pay an outstanding Sh64.6 billion
($646 million) of the syndicated
loan it took in 2015, in what could immediately cut down the mountain of foreign exchange reserves that has been growing in recent weeks and possibly weakening the shilling.
loan it took in 2015, in what could immediately cut down the mountain of foreign exchange reserves that has been growing in recent weeks and possibly weakening the shilling.
The
Central Bank of Kenya (CBK) reserves jumped by nearly $700 million
(Sh70 billion) last week to hit an all-time high of $9.5 billion (Sh950
billion), equivalent to 6.35 months of import cover.
The
build-up of reserves has since seen the shilling strengthen against
major currencies in tandem with rising amounts of dollars in the market.
Kenya
struck a $750 million syndicated loan agreement with a consortium of
lenders on October 28, 2015 with stated maturities of April 27, 2018.
Kenya’s
outstanding indebtedness under the 2015 syndicated loan facility is
$646 million, according to the prospectus for the recently raised $2
billion Eurobond.
The Treasury’s Debt Department did not respond to queries on the imminent payment.
Strong reserves
Kenya
is, however, sitting on a strong reserves position even with the
repayment, which will leave the CBK with five months of import cover
that is expected to limit the impact of the transaction on the shilling.
Importers
of machinery and fuel have been the major beneficiaries of the recent
appreciation of the shilling even as their counterparts exporting tea,
coffee and horticultural products feel the pain of a strong currency.
Kenya
is a net importer of goods and services that greatly benefits from the
positive effect of a stronger shilling through cheaper foreign goods and
lower cost of servicing foreign debt.
The CBK and
forex dealers said early this week that there was increased build-up of
dollars as a result of inflows from foreign investors and the
agricultural exports.
“The shilling strengthened
against the US dollar supported by flows from [the] agriculture sector
and offshore investors,” said the CBK without identifying the foreign
investors or the agricultural exports that brought in the inflows.
The central bank did not respond to queries on the looming payment of the syndicated loan.
Analysts,
however, said that the build-up of reserves may have arisen from
multiple sources, including the CBK purchases from the market, issuance
of new debt, sale of an asset in dollars or from a
government-to-government deal.
Support Shilling
The
build-up of reserves has shored up the local currency lately, putting
the mean exchange rate at 99.98 to the dollar compared to 101 units last
week. Commercial Bank of Africa said on Monday that foreign inflows
coupled with high dollar supply as well as weak demand for the greenback
had helped strengthen the shilling, indicating that the CBK — like
other market players — could also buy the dollar cheaply from the
market.
“The Kenya shilling continued its surge against
the US dollar to end the week on a high, helped by increased foreign
currency inflows. Increased activity on the dollar supply counter,
mainly by corporate players, surpassed weak foreign currency demand,
pushing the US dollar-Kenya shilling currency pair below a key
psychological barrier,” said CBA.
Last month, the CBK
received about $2 billion (Sh200 billion) proceeds of the Eurobond that
the Treasury raised from international financial markets — immediately
pushing the reserves to $8.8 billion (Sh880 billion).
That
saw the shilling rise to about 101 units to the dollar, up from 102-103
units range it had maintained for the preceding 12 months.
The
shilling last week made significant gains against the currencies of the
major trading partners, including the Uganda and Tanzanian shillings as
well as the Euro and the Japanese yen. The local unit, however,
weakened against the sterling pound.
The CBA said in
its report that the local currency was likely to be on a strengthening
streak if the supply of dollars continued.
“Market
chatter alludes to further appreciation of the local unit if recent
increased activity on the supply counter persists,” said CBA.
One
investment bank said that the Treasury was likely to spend less on
upcoming loan repayments as a result of the strengthening of the local
unit.
Kenya’s foreign-currency denominated debt has
risen in the past year to nearly Sh2.5 trillion, with the Eurobond alone
adding Sh200 billion to the liabilities.
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