A recent dip in Kenya’s foreign exchange reserves is highlighting the growing pressure on the country’s external position, even as authorities move to calm concerns about the stability of the shilling.
Data from the Central Bank of Kenya (CBK) shows that reserves have fallen in recent weeks, largely due to external debt repayments and reduced inflows of foreign currency.
The central bank, however, maintains that the current levels are still sufficient to support the economy and absorb short-term shocks.
CBK Governor Kamau Thugge, speaking during the latest Monetary Policy Committee (MPC) briefing, pointed to weakening diaspora remittances as one of the key emerging risks. He said inflows from abroad, which have been a major source of foreign exchange, are expected to grow at a much slower pace this year.
“We expect maybe a slight deceleration, again, because of the direct impact on remittances from the Gulf area, where about 10 per cent of our remittances come from, but there are also potentially indirect effects, arising from a slowdown in other countries, for example in the US,” Thugge said.
Adding;
“So we are projecting a growth of remittances of only 1.4 per cent this year.”
Remittances have consistently been a lifeline for Kenya’s economy, supporting household incomes while also boosting the country’s dollar reserves. A slowdown, especially from regions like the Gulf, signals tightening conditions globally, with ripple effects likely to be felt locally.
The CBK recently reported a drop of about Sh50 billion in reserves in its weekly update. The decline has been linked not only to debt servicing but also to global uncertainties, particularly the ongoing conflict in the Middle East, which continues to disrupt supply chains and push up global oil prices.
Higher fuel costs are especially significant for Kenya, which relies heavily on imports. Increased spending on oil directly raises demand for dollars, putting additional pressure on the country’s foreign exchange reserves and the shilling.
CBK on market operations
Already, the local currency has shown signs of slight weakness against the US dollar, although the CBK insists the movement has been controlled. The regulator credits its market operations and improved investor confidence for helping to limit volatility.
At the same time, the country’s current account deficit is expected to widen, adding another layer of pressure. The deficit reflects the gap between Kenya’s earnings from exports and services and its spending on imports and external payments.
“The current account deficit for 2026 is projected at 3 per cent of GDP… this is a reflection of the emerging risks of the conflict in the Middle East, higher oil prices, low receipts from services, slower growth in remittances, as well as slower growth in exports,” Thugge said.
Exports such as tea, horticultural products, and manufactured goods have performed mixed in global markets, while earnings from services, including tourism, are yet to fully offset rising import costs. This imbalance means the country continues to rely on external financing and reserves to bridge the gap.
Even so, the CBK has maintained a reassuring stance on the overall health of the reserves. As of April 7, the country held about $13.4 billion in gross reserves, translating to roughly 5.7 months of import cover. This is well above the statutory minimum of four months and the East African Community’s convergence benchmark of 4.5 months.
According to the central bank, this buffer remains a key line of defence, helping to stabilise the shilling and shield the economy from sudden external shocks. The CBK has also leaned on a mix of policy tools, including targeted interventions in the foreign exchange market, to maintain order.
While the current pressures are manageable, the outlook will depend heavily on global developments, including oil prices, geopolitical stability, and economic performance in key markets like the United States and the Gulf region.
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