Kenya to defer on fuel payments to feed declined forex reserves

 

Energy Minister Davis Chirchir

According to what Energy Minister Davis Chirchir indicated on Monday, Kenya would seek to pay for petroleum products over the course of an entire year rather than immediately after they are supplied in order to alleviate strain on the country's currency exchange rate.

The East African nation's usable foreign currency reserves decreased to an amount that is less than what is required by law to support four months of imports of any sort. This criterion is in place because the nation's reserves of foreign currencies have decreased.

Although it has fallen from its all-time high of $139 in March of last year, the worldwide reference price for Brent crude oil is now at $80 per barrel. This indicates that oil prices have a big role.

"We make payments of around $500 million within three days of a shipment's arrival at the port of Mombasa today." It produces enormous pressure, "according to what the minister informed the media."

Chirchir said that the administration would send a letter to merchants and the overseas companies that supply them stating that settlements will be paid when they are due.

Chirchir said that the administration would send a letter to merchants and the overseas companies that supply them stating that settlements will be paid when they are due.

A trade source who requested to remain anonymous and is aware of the situation revealed to Reuters that it has already requested 180 days of credit from petroleum suppliers, stating that it has to maintain dollars in order to satisfy its commitments to repay government debt.

A currency trader at a Nairobi commercial bank, who also requested that his name not be released because he was not approved to talk to the media, stated that the energy minister's plan was probably not going to succeed and would pass along the danger to the banks that were involved. 

He made this request because he was not given permission to talk to the media.

The dealer added, "We are just pushing that can down the road, and it might develop into a behemoth that is tougher to fight." "We are just pushing that can down the road."

In comparison to the dollar, the value of one shilling has decreased by one fifth during the course of the last three years.

Traders attribute some of the slump to the vigorous market policing conducted by the central bank, which they say has a calming effect on the bilateral hard currency market.

The current level of foreign currency reserves is $6.86 billion, which is sufficient to finance imports for 3.84 months.

The governor of the central bank, Patrick Njoroge, has responded negatively to criticisms of the institution's policies by stating that the regulator would only step in when there was excessive volatility.

Every two months, independent oil merchants in Kenya participate in Kenya's open bidding system, in which they submit bids to import items for the remainder of the sector.

According to Chirchir, the extended time frame for making payments may become effective in the following months.

According to him, "There are men working around the clock to ensure that the items for April/May are provided in accordance with that arrangement."

It is unknown if other nations have been successful in securing conditions comparable to those that Kenya is considering; nevertheless, merchants have reported that Ghana is discussing gold for oil agreements.