Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

KENYA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: June 30, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksCentral Bank of Kenya Act, Part VIA; www.centralbank.go.ke.
Exchange Arrangement
CurrencyThe currency of Kenya is the Kenya shilling.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe exchange rate is determined in the foreign exchange market. Authorized banks are licensed to buy, sell, borrow, or lend in foreign currency or transact any other business involving foreign currency. Foreign exchange bureaus may buy and sell foreign currency in cash and buy foreign traveler’s checks, personal checks, bank drafts, and bank transfers. Foreign exchange bureaus may also sell traveler’s checks with the prior approval of the Central Bank of Kenya (CBK). The dollar is the principal intervention currency. The official exchange rate is set at the previous day’s average market rate and applies only to government and government-guaranteed external debt-service payments and to government imports for which there is a specific budget allocation.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketCommercial banks are authorized to enter into forward exchange contracts with their customers at market-determined exchange rates in currencies of their choice. There are no limits on the amount or period of cover. For prudential purposes, commercial banks require approval from the CBK before introducing new forward contract products.
References to legal instruments and hyperlinksCentral Bank of Kenya Act, Part V, Sections 19(1) and 20; Guidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act Sections 1.3, 2.2, and 2.3; www.centralbank.go.ke.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payments arrangements
Regional arrangementsKenya is a member of COMESA, the EAC, and the East African Payment Systems Harmonization Committee.
Administration of controlThe Central Bank Act gives the CBK the power to license and regulate foreign exchange dealers.
Payments arrearsExternal arrears in 2006 (January-December) were $3.31 million. However, this amount excludes arrears resulting from security-related commercial loans, which are being audited. The rescheduled amount in 2006 (January-December) was $100.45 million. The rescheduling with Paris Club creditors ended in December 2006, paving the way for repayments of foreign loans that henceforth fall due.
OfficialYes.
Privaten.a.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesFor statistical purposes, persons leaving or entering Kenya must declare amounts exceeding the equivalent of K Sh 500,000 in domestic currency or $5,000 in foreign currency.
References to legal instruments and hyperlinksCentral Bank of Kenya Act, Section 57; Guidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act, Section 12.2; www.centralbank.go.ke.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadn.r.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksGuidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act, Section 4.19; www.centralbank.go.ke.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksGuidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act, Section 4.19; www.centralbank.go.ke.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsPayments should be effected through authorized commercial banks, and the use of Kenya’s foreign exchange reserves is not allowed to finance the import of goods and services destined for other countries.
Domiciliation requirementYes.
Preshipment inspectionAn inspection is required for all imports with an f.o.b. value of more than $5,000 or its equivalent. These are subject to inspection for quality, quantity, and price and require a clean report of findings. Banks are allowed to effect clean payments (for imports), provided they obtain from the importer immediately after shipment a pledge to submit the documents at a later date.
OtherA copy of the import declaration form, a final invoice, and a copy of the customs entry form must be submitted.
Import licenses and other nontariff measures
Negative listThe list includes a few items for health, security, and environmental reasons.
Import taxes and/or tariffsA CET applies to imports from countries outside the EAC.
State import monopolyNo.
References to legal instruments and hyperlinksCentral Bank of Kenya Act, Section 33 H(1); Guidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act, Section 4.2; www.centralbank.go.ke.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasCoffee, tea, and horticultural produce may be exported only if a sales contract is registered with the Coffee Board, Tea Board, and Horticultural Crops Development Authority, respectively. Exports of certain foods and agricultural products require special licenses to ensure adequate supplies in the domestic market. Exports of minerals, precious stones, and other essential strategic materials are also subject to special licensing.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsA minimum of 25% of the share capital of a listed company must be held by domestic investors.
Sale or issue locally by nonresidentsNo controls apply on the sale of securities by nonresidents. However, the issue of securities by nonresidents requires prior approval from the Capital Markets Authority (CMA).
Sale or issue abroad by residentsThe sale or issue of securities abroad by residents requires prior approval from the CMA.
Bonds or other debt securities
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsThe regulations governing securities of a participating nature apply.
Sale or issue abroad by residentsThe regulations governing securities of a participating nature apply.
On money market instruments
Sale or issue locally by nonresidentsNo controls apply on sales, but money market instruments may not be issued without prior approval from the CBK.
Sale or issue abroad by residentsThe sale or issue of money market instruments abroad by residents requires prior CBK approval.
On collective investment securities
Sale or issue locally by nonresidentsYes.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsCBK approval is required for these transactions.
Sale or issue abroad by residentsCBK approval is required for these transactions.
Controls on credit operationsNo.
Controls on direct investmentNo.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsPurchases of real estate are subject to government approval.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinkswww.cma.or.ke/Legal.html.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadOnly banks are allowed to open correspondent relations accounts abroad. Foreign exchange bureaus are prohibited from opening accounts abroad.
Lending to nonresidents (financial or commercial credits)These transactions are subject to prudential regulations.
Lending locally in foreign exchangeLending locally in foreign exchange is subject to prudential lending regulations.
Open foreign exchange position limitsForeign exchange exposure may not exceed 20% of an institution’s core capital.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsn.a.
Pension funds
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadPension funds may invest up to 15% of the aggregate market value of their total assets or pooled funds abroad. Pension funds may also invest up to 70% of the aggregate market value of their total assets or pooled funds in securities listed on the stock exchanges in Kenya, Uganda, and Tanzania and approved by the CMA.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksCentral Bank of Kenya Prudential Guidelines for Institutions Licensed under the Banking Act, www.centralbank.go.ke/downloads/publications/guides/pguides/prudentialguidelines.pdf; Guidelines on Foreign Exchange Transactions under the Central Bank of Kenya Act, www.centralbank.go.ke/downloads/publications/guides/fxguides/fxguide.pdf; Retirement Benefits Authority, www.rba.go.ke/page.asp?id=628.
Changes during 2006
No significant changes occurred in the exchange and trade system.

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