State eyes six-month import cover to cushion falling shilling
Kenya is targeting increasing foreign exchange reserves to at least 6.1 months of import cover as it looks to provide a stronger buffer to cushion the shilling against external headwinds going forward.
Kenya is targeting increasing foreign exchange reserves to at least 6.1 months of import cover as it looks to provide a stronger buffer to cushion the shilling against external headwinds going forward.
This has been revealed in details of the Medium-Term Plan 4 covering the period 2023 to 2027, which is the last implementation phase of Vision 2030 whose first medium-term plan spanned 2008 and 2012.
Under the present environment, 6.1 months of import cover translates to about $11.2 billion in foreign exchange reserves compared to the current $7.3 billion, which sums up to 3.98 months of import cover. According to Central Bank of Kenya (CBK), the statutory threshold for reserves is 4.0 months, an indication that at 3.98 months, the country has fallen marginally shy of what is prescribed.
The last time Kenya registered such high foreign exchange reserves trended above the 6.0 months of import cover mark was in June 2019 when they peaked at $10.1 billion, which at the time translated into 6.4 months of cover.
According to data from CBK, the shilling has lost 17.0 per cent of its value since the start of the year, and 20.7 per cent over the last 12 months, to stand at 144.40 units against the US dollar currently.
“Improving foreign exchange balance through promotion of exports in order to improve reserves to 6.1 months of import cover. Creating 1.2 million jobs annually. Expanding the tax base by increasing revenue collection to 18.3 percent of GDP by 2027/28,” says National Treasury.
The latest available data from the Kenya National Bureau of Statistics (KNBS) shows that Kenya’s trade deficit stood at Sh303.63 billion in the period between January and March 2023, an improvement from the Sh328.1 billion deficit reported in the same period in 2022.
The Finance Act 2023 has amended the Miscellaneous Fees and Levies Act of 2016 to introduce the Export Promotion and Investment Levy effective September 1st, 2023 geared towards generating funds to boost manufacturing, increase the country’s exports and slash the monthly import bill.
