Capital Markets
Gloomy American economy slows down diaspora remittances
Friday June 30 2023
Diaspora remittances into Kenya have slowed down on the economic hardships faced by Kenyans in the US. FILE PHOTO | POOL
Diaspora remittances into Kenya have slowed down on the economic hardships faced by Kenyans in the US, which are partly linked to rising interest rates.
The inflows from Kenyans living and working abroad have fallen behind the previous tally on a year-to-date basis.
Central Bank of Kenya (CBK) data show diaspora remittances contracted by 1.8 percent so far this year to Sh237.1 billion ($1.688 billion) as of the end of May from Sh241.4 billion (($1.719 billion) at the same stage last year.
Read: Diaspora remittances defy inflation hit Sh453bn
The remittances recorded a three-month consecutive drop between February and April before picking up slightly in May.
During the first five months of 2023, diaspora remittances from the US dropped by five percent to Sh135.4 billion ($964.2 million) in contrast to Sh142.6 billion ($1.02 billion) in May last year.
Kenya sources more than half of its remittances from the US economy where the market has seen contraction this year as the Federal Reserve lifts interest rates to contain inflation.
“About 57 percent of remittances come from the United States. The slowdown in the US economy may be part of the story explaining why there is a flattening of the diaspora remittances,” CBK governor Kamau Thugge said on Thursday.
According to the IMF’s World Economic Outlook published in April, the US economy is projected to grow by 1.6 percent this year from 2.1 percent in 2022 and 5.9 percent in 2021.
Furthermore, the US economy has been tipped to grow by a slower 1.1 percent in 2024 extending the lag in growth from this year.
The drop in the diaspora remittances has been partly cushioned by the weakening exchange rate, which has meant that recipients of the diaspora cash have been getting more shillings from currency exchange.
Read: Money from Kenyans abroad dips for first time in 13 years
“In terms of Kenya shillings, there still would be a significant increase given the exchange rate has shifted in contrast to last year,” Dr Thugge added.
