The Central Bank of Kenya (CBK) posted a net deficit of Sh24.34 billion during the financial year ended June 30, 2024 as a weakening shilling weighed heavily on its operations resulting in unrealised forex losses.
The regulator’s latest net deficit is in contrast to a net gain of Sh150.49 billion registered during the financial year ended June 30, 2023, according to disclosures from the bank’s audited financial statements for the year ended June 30, 2024.
Its operating surplus more than doubled to Sh49.21 billion from Sh19 billion due to higher average returns from the securities portfolio and deposits.
Weak shilling pushed CBK into reporting unrealised foreign exchange losses amounting to Sh73.55 billion from a gain of Sh131.48 billion in the same period last year (2023).
The shilling depreciated by 26.8 percent in 2023 with the country relying mainly on receipts from the International Monetary Fund (IMF) and the World Bank (WB) to prop up the local unit by boosting forex reserves.
Kenya’s forex reserves dropped by 11 percent to $ 6.7 billion (equivalent to 3.6 months of import cover) in December 2023, from $7.5 billion (equivalent to 4.2 months of import cover) recorded in December 2022, largely due to increased debt service obligations related to the continued depreciation of the local unit against the greenback.
In January this year, the shilling extended its worst run in 30 years by declining to a record low of Sh160 per unit of the US currency on increased demand for the greenback by importers.
Since then, the local currency has been strengthening against the US Dollar coupled with declines in the central bank’s benchmark lending rate to commercial banks and the overall monthly inflation.
The shilling remained relatively stable against the greenback during the week ending October 17 exchanging at Sh129.20 against the US dollar compared to Sh129.19 per US dollar in the week ending on October 9.
The usable foreign exchange reserves remained at $8.49 billion (4.4 months of import cover) during the period.
However, concerns about inflation continue to ease in advanced economies, with the UK headline and core inflation declining from 2.2 percent and 3.6 percent in August 2024 to 1.7 percent and 3.2 percent in September 2024, respectively, largely driven by the easing of service inflation.
“The European Central Bank lowered its policy rate by 25 basis points to 3.25 percent. The US dollar index strengthened by 0.87 percent against a basket of major currencies during the week ending October 17, 2024,” says CBK.
As of the end of June 2024, Kenya’s public debt stock was Sh10.56 trillion (equivalent to 65.5 percent of GDP) consisting of domestic debt stock of Sh5.41 trillion (equivalent to 33.5 percent of GDP), and external debt stock of Sh5.15 trillion (equivalent to 32.0 percent of GDP).
Domestic and external debt accounted for 51.2 percent and 48.8 percent of the total debt stock, respectively.
The banking sector recorded an 8.8 percent decline in profit before tax to Sh219.2 billion in 2023 from Sh240.4 billion in 2022, largely as a result of a higher increase in total expenses (Sh175.3 billion) compared to the increase in total income (Sh154.1 billion), according to CBK data.
In the first six months of this year (January-June) 2024 the banks recorded currency losses of about Sh50 billion when translating the financials of regional subsidiaries into Kenya shillings due to the appreciation of the shilling during the period.
The Kenyan shilling appreciated by between 19 percent and 31 percent against the currencies of Uganda, Tanzania, Rwanda, Burundi, and the Democratic Republic of Congo (DRC)during the period (January-June), reversing the depreciation of the local unit in 2023 when it was one of the world’s worst performing currencies.
