Remittances offer crucial lifeline for families amid record inflation – WorldRemit
Kenya’s inflation hit a 63-month high of 9.2% in September, according to monthly inflation data provided by the Kenya National Bureau of Statistics. The rising cost of food, fuel and other basic commodities is putting pressure on household budgets, forcing many families to cut back on non-essential spending and dip into their savings to get by.
Amid these challenging economic times, Kenyans that receive remittances from loved ones living and working abroad are finding timely relief. Money sent home by Kenyans overseas has been steadily growing in recent years and today, represents one of the top sources of forex for the country. Data from the Central Bank of Kenya (CBK) shows that for the first six months of 2022, remittances to Kenya totaled USD $2.04 billion, a 16.5% jump from the USD $1.75 billion that was sent to Kenya in the first six months of 2021.
With remittances remaining resilient in challenging economic times, here are some of the main reasons why remittances offer a crucial lifeline for families amid record inflation:
Easing the cost of education
Education has gotten more expensive in recent years due to inflation and the disruption of the school calendar, with schools operating for more months than usual to make up for lost time during the Covid-19 lockdowns.
A survey by WorldRemit shows that, on average, Kenyans paid 1.75 times their monthly salary on school supplies during the August back-to-school period. Remittances help ease the cost of education for families as education is one of the main reasons migrants send money back home. It’s not uncommon to find a Kenyan living abroad supporting their children or siblings back home to go through school, including in university.
Supporting medical expenses
Medical expenses also rank highly among the main use of remittances to Kenya. Given the cost of healthcare, and the fact that health insurance is still not widely available for many, remittances provide great support to many families. It’s worth noting that medical bills is one of the main contributors to poverty in Kenya, with many families being forced to sell land, vehicles and other assets to settle hospital expenses.
While remittances are not a replacement for health insurance, they help many families manage the financial burden that comes with ill health.
Benefiting from exchange rates
One of the most notable developments in global currency markets this year is the strengthening of the US dollar against other currencies. If you look at the exchange rate in Kenya, $1 US is now exchanging for around Sh120 (up from Sh110 a year ago). While migrants can send money in other currencies, the majority send in USD as the US is one of the main sources of remittances to Kenya. This means that receivers can enjoy higher values in local currencies, cushioning them from some of the effects of inflation.
A source of funds amid rising interest rates
Central banks around the world have been increasing interest rates in recent months to battle inflation. The Central Bank of Kenya (CBK) has not been left behind. It recently raised[1] the Central Bank Rate (CBR) to 8.25% from 7.5%. The CBK noted that the move to hike the rate was driven by the need to control rising inflation.
Amid this rise in interest rates, families that can access affordable funds from loved ones abroad by way of remittances will be better positioned to weather the effects of inflation.
“Remittances have a powerful social and development impact. In these challenging economic times, migrants in the diaspora have continued to stand in solidarity with friends and families back home, contributing to education, health, and even gifts through remittances,” said Ivan Kanyali, Regional manager East Africa, WorldRemit.
Remittances clearly provide a lifeline to families amid the record increase in prices of food and other basic commodities.
It’s timely that the Kenyan government is establishing a Ministry of Diaspora (within the Foreign Affairs Ministry) to address issues affecting its citizens even as it focuses to boost remittances. This will help many families that depend on remittances. It will also strengthen the strong connections Kenyans abroad have with friends and family back home.
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