Kenyan diaspora defies Covid-19 to keep dollars flowing

The Kenyan diaspora has defied hardships arising from the Covid-19 pandemic to keep dollars flowing into the country.

The flows termed as diaspora remittances grew by 0.9 percent in six months through June 2020 in comparison to a similar period in 2019 to mark resilience.

The remittances stood at Ksh.157.5 billion ($1.46 billion) in the period from Ksh.156.1 billion ($1.44 billion) last year.

Dollar flows in June which stood at Ksh.31.1 billion ($288.5 million) were for instance the second highest booked flows in a single month on record.

Resilience in the foreign currency flows has taken the country by surprise with the Central Bank of Kenya (CBK) having previously estimated a 12 percent decline in the remittances year over year.

On Thursday, the CBK revised this outlook to a growth of one percent in line with the observed resilience.

“It was expected that earnings from the diaspora would decline with entities such as the World Bank predicting a 20 percent shortfall. We haven’t seen that,” CBK Governor Patrick Njoroge said.

Remittances has historically shown resilience in difficult economic periods as Kenyans abroad endeavour to support their families back home to keep the cheques coming.

The year so far has however been defined by widespread economic turmoil with developed economies witnessing similar hardships to the developing world.

Global markets analyst and Corporate Finance Manager at ABC Capital Johnson Nderi however reckons cushioning by governments in developed world including stimulus cheques in the US and furlough schemes in Europe have created a soft-landing for the remittances.

“I have a strong feeling that the diaspora flows maybe funded by support cheques,” he said.

Dollar flows from North America have shown the greatest resilience improving by 22.9 percent between May and June to Ksh.15.7 billion at a time when the US government was issuing monthly cheques of Ksh.129,240 ($1200) to households.

Analysts at Genghis Capital have meanwhile linked the positive surprise in remittance flows to diaspora investors seeking a greater return to investments in frontier markets.

“We were swept by the positive surprise in diaspora remittances but we think this reflects the ‘search for yield’ that the diaspora is screening, against the backdrop of ultra-conservative monetary policies adopted by developed markets’ central banks,” the analysts noted in a fixed income note.

Remittances are seen as an important cog to not just households’ income in the country but also government through their contribution of nearly one third of the CBK’s usable foreign currency reserves which are used to partly settle external debt and cushion the shilling.

The reserves stood at a solid Ksh.1.01 trillion ($9.4 billion) as of July 23 or an equivalent 5.72 months of import cover.

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