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Diaspora cash in biggest fall since global financial crisis
Monthly data shows the slowdown gathered pace throughout the quarter, with remittances declining 5.9 percent in April, 10.4 percent in May and 11.2 percent in June, making June the weakest month of the year.
Money sent home by Kenyans living and working abroad recorded its steepest first-half decline since the aftermath of the 2008 global financial crisis, reflecting the impact of geopolitical tensions in the Middle East, a new US tax on outbound money transfers and tighter labour policies in Saudi Arabia.
Central Bank of Kenya (CBK) data shows diaspora remittances fell 3.03 percent to $2.442 billion (Sh315.75 billion) in the six months to June, down from $2.518 billion (Sh325.58 billion) during the same period last year. The decline wiped out $76.4 million (about Sh10 billion) in foreign exchange inflows.
It marks the sharpest January-to-June contraction since 2009, when the global financial crisis triggered widespread job losses in advanced economies and caused remittances to Kenya to fall by 11.4 percent.
The weakness emerged after a relatively strong start to the year, suggesting external shocks intensified in the second quarter as the conflict involving Israel and Iran disrupted economic activity across the Middle East.
Remittances rose 3.4 percent to $1.274 billion (Sh164.73 billion) in the first quarter, supported by stronger inflows in February and March.
However, the gains were erased between April and June, when inflows dropped 9.2 percent to $1.168 billion (Sh151.02 billion), representing a loss of $118.2 million (Sh15.28 billion).
Monthly data shows the slowdown gathered pace throughout the quarter, with remittances declining 5.9 percent in April, 10.4 percent in May and 11.2 percent in June, making June the weakest month of the year.
The deterioration coincided with heightened tensions in the Middle East, where thousands of Kenyans work, particularly in Gulf states.
The conflict disrupted supply chains, increased transport costs and fuelled inflation in major economies, weakening disposable incomes among migrant workers.
"The conflict in the Middle East has disrupted global supply chains and led to a sharp increase in prices and transportation costs, resulting in higher inflation and moderated global growth," the CBK's Monetary Policy Committee said after retaining the benchmark lending rate at 8.75 percent in June.
CBK Governor Kamau Thugge had earlier warned that the conflict would directly reduce remittances from Gulf countries, which account for about 10 percent of Kenya's diaspora inflows, while indirectly slowing remittances from larger markets such as the United States because of weaker economic growth.
The World Bank also warned in June that up to $40 million (Sh5.2 billion) in monthly remittances to Kenya was at risk because of the conflict.
The slowdown also coincided with the introduction of a one percent US excise tax on outbound money transfers, which took effect on January 1 and increased the cost of sending money home. Analysts have warned that the levy could encourage migrants to reduce formal remittances or shift to alternative channels such as cryptocurrencies.
Although the CBK is yet to release country-by-country data for May and June, its latest figures show remittances from the United States—the source of more than half of Kenya's diaspora inflows—fell 8.4 percent to $813.6 million (Sh105.12 billion) in the first four months of the year from $888.4 million (Sh114.87 billion) a year earlier.
The $74.8 million (Sh9.67 billion) decline from the US alone was almost equal to Kenya's entire first-half reduction, underlining America's central role in the slowdown. The US share of Kenya's remittances also dropped to 48.7 percent from 53.7 percent a year earlier, marking the first time in recent years that less than half of recorded remittances originated from the US.
Before the tax took effect, Kenya Diaspora Alliance global chairman Shem Ochuodho warned that higher transfer costs could encourage migrants to seek cheaper alternatives.
Saudi Arabia, another major remittance source, also recorded a sharp decline. Inflows from the kingdom dropped 24.8 percent to $88.7 million (Sh11.47 billion) in the first four months from $117.9 million (Sh15.24 billion) a year earlier following labour market reforms aimed at increasing employment of Saudi nationals and slowing economic activity.
Despite the weakness in North America, which saw remittances fall 11.6 percent to $1.278 billion (Sh165.2 billion), stronger inflows from other regions cushioned the overall decline.
Remittances from Europe increased 14.3 percent to $514.3 million (Sh66.5 billion), while transfers from the rest of the world rose 4.4 percent to $649.5 million (Sh83.98 billion). Together, the gains partly offset the sharp slowdown from Kenya's traditionally largest remittance markets.
