By Benadeta Mwaura - Reporter
Kenya , May 05, 2026 - Kenya’s foreign exchange buffers are beginning to show signs of strain as the ongoing Middle East conflict pushes the economy into a more vulnerable position, with reserves declining even as authorities move to defend the shilling and cushion the country from rising global shocks.
Recent data shows that the country’s forex reserves have fallen from earlier highs, reversing part of the gains built up in recent months when they peaked at about $14 billion Sh1.82 trillion, equivalent to roughly six months of import cover.
The decline comes at a time when the government is increasingly being forced to tap into these reserves to stabilise the currency and finance essential imports such as fuel and food.
The pressure is largely being driven by the Iran war, which has disrupted global oil markets and pushed up prices, significantly raising Kenya’s import bill. As a net oil importer, the country is particularly exposed to such shocks, with higher fuel costs widening the current account deficit and increasing demand for dollars.
According to Kamau Thugge, the reserves were deliberately built up to act as a buffer against exactly this kind of external shock. “The whole point about why we have been building these international reserves… was precisely to be able to avoid excessive volatility,” he said, noting that the central bank has already intervened to steady the shilling.
However, the strain is becoming evident. Data indicates that reserves dropped by about $1.3 billion (Sh167.9 billion) between early March and April, settling at around $13.3 billion, equivalent to 5.7 months of import cover.
This decline reflects increased dollar demand for imports and external debt servicing, as well as interventions by the Central Bank of Kenya to keep the currency stable.
Despite the drawdown, Thugge has maintained that the country still has sufficient firepower to manage currency volatility. “If there’s pressure… definitely it will depreciate,” he said, adding that any weakening of the shilling would be controlled and orderly rather than abrupt.
The shilling itself has already come under pressure in recent weeks, weakening during peak tensions before stabilising as global conditions briefly eased. But analysts warn that this stability could be fragile, particularly if oil prices remain elevated or geopolitical tensions persist.
More from Kenya
The impact of declining reserves extends beyond currency markets. Lower reserves limit the country’s ability to finance imports, service external debt, and respond to future shocks. They also send signals to investors about the country’s external stability, potentially affecting capital inflows.
At the same time, the broader economic outlook is becoming more uncertain. The Iran conflict is expected to weigh on key inflows such as exports, remittances, and tourism earnings, three critical sources of foreign currency for Kenya.
Economists warn that a prolonged crisis could deepen these pressures, further eroding reserves and increasing the risk of currency depreciation.
The government has already taken steps to cushion the economy, including seeking emergency funding from the World Bank and adjusting fuel taxes to ease the burden on consumers. But these measures may only provide temporary relief if global conditions remain volatile.
What is emerging is a delicate balancing act.
Kenya still has relatively strong buffers compared to previous crises, but those buffers are now being tested in real time. The drawdown in forex reserves is not yet a crisis, but it is a clear signal that the economy is under pressure.
And if the Iran war drags on, that pressure is likely to intensify, putting the country’s financial resilience, and the cost of living for ordinary Kenyans, under even greater strain.