The Coronavirus pandemic has hit the economy hard with the Central Bank’s foreign currency reserves dropping to a 26-month low. The Central Bank of Kenya’s (CBK) foreign exchange reserves dropped to $8,290 million – only enough to cover the country’s imports for 5.04 months. This is the lowest import cover since the December 2017 electioneering period. News agency Reuters quoted some traders saying that CBK came into the market to sell the dollars in a bid to salvage the Shilling, explaining the drain to its reserves. By end of Thursday, reserves had dropped by $119 million from $8,417 million or 5.11 worth of import cover. “They came in the market to try and control this slide,” a senior trader at one commercial bank told Reuters Sufficient foreign currency reserves are critical to the payment of the country’s imports from the world market as well as payment of debts to foreigner creditors by both public and private sectors. However, the pandemic has seen the country witness low inflow of foreign exchange reserves due to limited exports of flowers, tea and coffee to Europe and North American which are under lockdown. Other sources of foreign exchange reserves include tourist receipts, which have also fallen after country-restricted travel to tame the spread of the virus. Europe, which is the main source of Kenya’s foreign tourists, has been hit hard by the virus which has so far claimed over 9,000 lives. On Friday, the Shilling sunk to a record low, trading at 105.6 against the dollar at some point during the day. Besides the erratic inflow of dollars, expensive imports have also contributed to the weakening of the local currency. Diaspora remittances Another reason that might have contributed to local unit ceding ground against the greenback is the decision by CBK to buy dollars from the market. However, the Shilling seemed to have recovered from that pressure before Coronavirus re-awakened the pressure. Also, diaspora remittances from Kenyans living and working abroad, which are other sources of foreign exchange reserves, too, seem to have been affected by the deadly virus. Kenya could also replenish its reserve of foreign currencies with borrowed cash. However, with a jittery market, securing a good credit facility is not going to easy for the country. Even worse, Kenya is yet to sign up for the International Monetary Fund (IMF) insurance cover that would have provided an additional buffer in […]