Official Reserves Hit Year-Low On Rising External Debt Costs

By Kepha Muiruri For Citizen Digital

Kenya’s gross official reserves touched a year low of Ksh.969.3 billion in the quarter ended March 2021, the lowest in a year since the preceding quarter in 2021.

New data on the balance of payments (BOP) from the Kenya National Bureau of Statistics (KNBS) shows the reserves fell from Ksh.1.074 trillion at the end of December with external debt redemptions driving down the store of reserves.

The official reserves were for instance down by in excess of Ksh.120.6 billion in the three months.

“During the review period, there was a significant drawdown in official reserves to service external debt pushing the overall balance of payments position to a balance of Ksh.120.6 billion from a deficit of Ksh.25.3 billion in the corresponding quarter of 2021,” noted the report.

The rise in external debt servicing over the three months is partly attributable to the depreciation of the Kenya shilling to the dollar which exchanged at Ksh.114.95 at the end of March in contrast with Ksh.111.49 at the end of December 2021.

Gross official reserves describe assets held by Central Banks including gold, foreign currency assets and special drawing rights (SDRs).

When netted, the reserves largely represent usable foreign exchange reserves held by Central Banks as a buffer against external shocks and have different utilities including external debt service.

CBK’s usable FX reserves have as such followed the trajectory of official reserves, falling by Ksh.5.4 billion ($46 million) to settle below the $8 billion mark (Ksh.944 billion) for the first time in years.

The reserves nevertheless still stand above the lower limit of 4.5 months of import cover at 4.74 months.

Moreover, the depleting reserves have coincided with a weakening local currency unit with the Kenyan Shilling trading at Ksh.117.97 against the US dollar at the close of trading on Monday.