CBK says foreign investment and financial inflows are helping support the Kenyan shilling
Central Bank of Kenya (CBK) Governor Kamau Thugge has attributed the stability of the Kenyan shilling to improving balance-of-payments conditions, pointing to financial inflows and reserve accumulation as important sources of support for the country’s external position.
Presenting before the National Assembly’s Finance and Planning Committee this week, Thugge told lawmakers that Kenya’s current account deficit was being offset by a surplus in the financial and capital accounts. He said the resulting overall balance-of-payments position had allowed the country to accumulate foreign exchange reserves, supporting the stability of the shilling.
The Governor reported a current account deficit of US$4.68 billion and a financial and capital account surplus of US$7.458 billion. He also discussed reserve accumulation of approximately US$2.4 billion in 2026 and projected a further US$1 billion build-up in 2027.
Thugge says financial inflows are offsetting the current account deficit
Thugge explained that Kenya’s external position should be assessed by looking beyond the current account, which records trade in goods and services as well as primary and secondary income flows.
He told the committee that the current account deficit was being covered by the surplus recorded in the financial and capital accounts, which include cross-border investment and other financial transactions.
The Governor said the financial and capital account surplus had reached US$7.458 billion against a current account deficit of US$4.68 billion.
This distinction is important because a country can continue importing more goods and services than it exports while maintaining an overall balance-of-payments surplus if sufficient financial inflows enter the economy.
Thugge said the combination of these flows had supported reserve accumulation and contributed to the stability of the Kenyan shilling.
CBK links capital transactions to reserve accumulation
The Governor pointed to foreign investment and major transactions involving Kenyan companies and financial institutions when explaining the financial inflows supporting the country’s external position.
He cited Safaricom, Kenya Pipeline Company and takeovers involving banks as examples of transactions contributing to the financial and capital account.
Such transactions can involve substantial financial flows between domestic and foreign investors, depending on the structure of the deals and the parties involved.
Thugge also outlined the country’s reserve accumulation, saying Kenya had built up approximately US$2.4 billion in 2026. He projected a further US$1 billion accumulation in 2027.
The Governor linked the build-up of reserves to the country’s ability to meet external obligations and maintain confidence in the foreign exchange market.
Foreign exchange reserves provide the Central Bank with resources to support external payments and manage periods of pressure on the domestic currency. Their accumulation also reflects the broader balance-of-payments position and the availability of foreign currency within the economy.
Kenya’s balance of payments position has improved from earlier deficits
Thugge used historical figures to demonstrate the improvement in Kenya’s external position over recent years.
He told lawmakers that the country recorded a balance-of-payments deficit of approximately US$2 billion in 2022, followed by a deficit of US$1 billion in 2023.
He then pointed to reserve accumulation of approximately US$1.4 billion in 2024 and US$2.4 billion in 2025, before discussing a similar build-up projected for 2026.
The figures formed part of the Governor’s explanation of why he considers the shilling’s stability to be supported by economic fundamentals.
He said the currency’s performance was connected to the country’s improving external position and the accumulation of foreign exchange reserves.
The Central Bank’s projections also point to continued reserve accumulation in 2027, although at a lower level than the amount Thugge cited for 2026.
Treasury financing needs remain a risk to external projections
Thugge also raised the possibility that external financing expected by the National Treasury might not materialise as planned.
The concern is relevant to Kenya’s balance-of-payments outlook because external financing contributes to the supply of foreign currency and helps meet the government’s financing requirements.
If anticipated external resources are delayed or fall short, the government may need to rely on alternative sources of financing, with implications for the country’s external accounts and foreign exchange requirements.
The Governor’s presentation therefore linked shilling stability to the interaction between current account performance, financial inflows, reserve accumulation and the government’s external financing position.
He maintained that the stability of the Kenyan shilling was supported by the country’s underlying economic fundamentals, pointing to the improvement in the balance of payments and the accumulation of foreign exchange reserves.
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