Foreign exchange reserves hit a 21-month low last week, piling pressure on the dollar stock the government uses to service foreign debt and cushion the shilling.
Latest data by the Central Bank of Kenya (CBK) shows assets in foreign currency fill to $6.2billion (Ksh.652.24 billion) last Thursday from $6.25 billion (Kshs.657.50 billion) a week earlier, mirroring the January 30, 2014, levels when it stood at $6.20 billion.
This is equivalent of 3.98 months of million cover, levels last seen in April, 2012 but well within the government’s target of 3.4 months.

National Treasury Cabinet Secretary Mr. Henry Rotich said on Wednesday the fall of the Shilling to above 100 units against the dollar complicates government’s borrowing plans which was based to levels below 100.
“However, we are now seeing easing of the shilling and we should not have any further pressures in terms of debt repayment”, said Mr. Rotich.
The government plans to borrow Ksh.340.5 billion from foreign lenders and Kshs.229.7 billion domestically to plug the Kshs.570.2 billion deficit in the Kshs.2.2 trillion budget for this fiscal years ending next June.
The CBK has responded with a 300-basis tightening over the last three months, besides interventions in the foreign exchange market, increasing the cost of borrowing domestically.
Mr. Rotich said the increase in interest rates is a “temporary phenomenon”, explaining the issue of short term debt bonds.
“As government we will also be looking to access other sources of funds to avoid putting more pressure on interest rates domestically…what we had budgeted to borrow in shillings, we may choose to borrow in other currencies”, he added.
The dwindling of the dollar reserves is a reflection of rising demand for dollars by the private sector and falling inflows from traditional foreign exchange earners, tourism and agricultural exports.

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