Kenya’s foreign exchange reserves drop to lowest levels in 3 years

Kenya's private sector economy has shown signs of improvement in February despite a slowdown in the rate of expansion. The Purchasing Managers Index (PMI) for the month declined to 50.9 from 53.2 in January. A reading above 50 indicates growth, while below 50 shows a decline. This drop was attributed to marginally increased output, modest new order volumes, and weak cash flow restricting household and client spending. Solomon Cario Kijedas, an investment analyst at Aliawn Kenya Marketport, highlighted the impacts of the COVID-19 pandemic on the economy, noting that certain sectors are still struggling to rebound. The non-food manufacturing sector, in particular, faces challenges due to limited cash flows among consumers. However, there is optimism that as the country adapts to the effects of the pandemic, economic growth will pick up. Recently, the parliament released the budget appropriation committee report outlining the 2021 budget policy statement. Some key recommendations included reviewing ongoing projects, restructuring state-owned enterprises, and setting revenue collection targets for the fiscal year 2021-22. The report also highlighted a decrease in foreign exchange reserves, raising concerns about the economy's stability. The reserves, which are used by the Central Bank of Kenya (CBK) to support the local currency, have dropped to 4.52 billion shillings. This reduction limits the CBK's ability to intervene and stabilize the shilling if it faces further depreciation. The decline in reserves poses risks for the economy and may impact the country's exchange rate. Overall, Kenya's economy faces challenges stemming from the ongoing pandemic and dwindling foreign exchange reserves, requiring strategic measures to sustain growth and stability.