Kenya’s official foreign exchange reserves are expected to come under renewed pressure, the World Bank has said, citing rising import costs and a slowdown strain in hard-currency sources such as diaspora remittances.
The multilateral lender links this to escalation of external pressures and sees Kenya’s current account deficit worsening to a wider-than-expected 4.3 percent of GDP, compared to a conservative three percent outlook by the Central Bank of Kenya (CBK).
A country’s current account is its record of the flow of money into and out of the nation in the form of imports and exports, investment earnings, and foreign aid. If a country exports more than it imports, it has a trade surplus while the opposite holds if it imports more.
The wider-than-anticipated current account balance is expected to result in increased exchange rate pressures, which could necessitate the CBK to part with a portion of its reserves to curb volatility in the exchange rate.
The CBK usually buys and sells foreign exchange from its reserves to contain any volatility on the shilling by introducing or withdrawing hard currency liquidity.
The official reserves have already recorded a reduction since the start of the US-Israel war on Iran in March, but the Kenya Shilling has held firm to trade in a narrow-bound range of 129 to 130 units against the US dollar.
“Foreign exchange reserves decreased by $1.2 billion (Sh155.3 billion) to $13.4 billion (Sh1.73 trillion) as of early May 2026 or 5.7 months of import cover,” the World Bank said.
“Even if they remain above the CBK’s statutory minimum of four months, these developments point to emerging external pressures in a more challenging global environment.”
CBK’s foreign exchange reserves remained at 5.7 months of import cover or Sh1.7 trillion ($13.17 billion) as of last week. The current account deficit had already widened to 2.8 percent of GDP by December 2025, driven by a larger merchandise trade gap and moderating remittance inflows.
In March, international reserves peaked at Sh1.89 trillion or 6.2 months of import cover, the highest level in five years. “However, with the pressures from the Middle East conflict, external accounts are being severely affected,” the World Bank added.
“Leading export indicators suggest a six percent fall in exports in March 2025 compared to March 2025, with an increasing import bill of 21 percent from petroleum products. Moreover, the country experienced one of the sharpest monthly drops in remittances in recent years, with up to $40 million (Sh5.17 billion) in monthly remittances potentially at risk.”
In April, CBK cut its projection of diaspora remittances for 2026 by Sh40.5 billion ($313 million) on the expectation of lower inflows from the Middle East due to the war and recently introduced transaction taxes in Saudi Arabia.
The apex bank expects diaspora remittances to total Sh660.3 billion ($5.1 billion) this year from an earlier estimate of Sh701.8 billion ($5.42 billion).
Inflows from the Gulf region account for roughly 10 percent of Kenya’s annual remittance inflows.
The increased recruitment of Kenyan workers into the Gulf region is boosting diaspora remittance flows from Saudi Arabia, the United Arab Emirates (UAE) and Qatar.
The Iran war has, however, disrupted the economies of the Gulf countries and has slowed down new entries into the region.
“We expect a slight deceleration because of the direct impact (of the conflict) on the remittances from the Gulf area where about 10 percent of our inflows come from. But there are also potentially indirect effects arising from the possible economic growth slowdown in other countries, for example the US,” CBK Governor, Kamau Thugge said in April.
Diaspora remittances are Kenya’s largest source of hard currency ahead of tourism receipts and agriculture exports.
The CBK has been noted to continue exercising prudent foreign exchange management as the shilling holds firm against major world currencies.
“CBK continues to maintain effective operating controls and foreign exchange management,” the World Bank said.
