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In the year leading up to December 2023, Kenyans abroad have significantly increased their remittances back home, with an additional Sh25.9 billion flowing into the country.
This uptick aligns with a prediction by Western Union, which foresaw a rise in remittances due to the weakening Kenyan shilling, now valued at 163 against the US dollar.
According to Western Union’s Global Money Transfer Index released in March of the previous year, an increase in remittances was anticipated as a result of the declining shilling.
This forecast has come to fruition, with the Central Bank of Kenya (CBK) reporting in its weekly bulletin that remittance inflows for 2023 reached an all-time high of $4.19 billion (Sh670 billion), up from $4.03 billion (Sh644.8 billion) in 2022, marking a 4.0 per cent increase.
December saw a 5.0 per cent increase in inflows, totaling $372.6 million (Sh59 billion), up from $355.0 million (Sh56 billion) in November. This makes it the second-highest month for remittances in the year, following July, which recorded the highest ever inflow at $378.1 million.
Despite this surge in diaspora remittances, Kenya’s foreign exchange reserves continued to experience a decline.
As of January 18, the forex reserves dropped to $6,814 million (Sh1 trillion), equivalent to just about 3.6 months of import cover, a decrease from $6,829 million (Sh1.08 trillion), or about 3.7 months of import cover a week earlier.
The CBK, however, maintains a positive outlook, stating that the strong remittance inflows are supporting the current account and foreign exchange market, despite the forex reserves falling short of the statutory requirement of maintaining at least four months of import cover for much of last year.
The United States has historically been the largest source of remittances to Kenya, contributing 56 per cent in 2023.
However, Saudi Arabia has recently emerged as a significant player, driving the growth in remittances. The Middle Eastern nation accounted for nearly two-thirds of the increase in diaspora inflows for the first eight months of 2023.
The Kenyan government, recognizing this trend, is negotiating a bilateral agreement with Riyadh to create a structured framework for recruiting Kenyan professionals to Saudi Arabia. The first notice of 2500 Kenyan nurses has been issued, and they are expected to report to the Kingdom in coming weeks.
In 2022, Kenyan expatriates in Saudi Arabia sent home $302.26 million (Sh48 billion), a substantial rise from the $185.01 million (Sh29.4 billion) remitted in 2021.
Diaspora remittances have become a crucial part of Kenya’s economy, surpassing traditional foreign exchange earners like tea, coffee, and tourism since 2017.
The tourism sector, previously a major foreign exchange contributor, suffered dramatically due to the Covid-19 pandemic, with an 80 per cent decline in revenues in 2020 compared to Sh162 billion generated in 2019.
The Ruto administration has made diaspora remittances a top priority area, negotiating for labour agreements with multiple countries as the Shilling continues to be battered by the dollar.