- Kenyan Shilling, which has been on a free-fall against the Dollar since mid-last year, fell to a record-low of 162 to the greenback with projections it could tumble further into the year.
- The unit has shed over 31 per cent of its value to the dollar year-to-date, as the Fed rate hikes in the US took a toll on currencies across the different markets.
- According to Kenya National Bureau of Statistics (KNBS), the Kenyan shilling also ceded ground against the Euro, Pound Sterling and the Japanese Yen.
The Kenyan government is facing a major headache as the country’s currency continues to fall against the US Dollar and other major currencies, hitting a new low this week.
Kenyan shilling, which has been on a free-fall against the dollar since mid-last year, fell to a record-low of 162 to the greenback with projections it could tumble even further this year.
The local unit has shed over 31 per cent of its value to the dollar year-to-date, as the Fed rate hikes in the US took a toll on currencies across the different markets.
According to statistics by the Kenya National Bureau of Statistics (KNBS), the Kenyan shilling also ceded ground against the Euro, Pound Sterling and Japanese Yen by 30.3 per cent, 29.7 per cent and 15.3 per cent, respectively.
The local currency also notably depreciated against South African Rand, Tanzania Shilling and Uganda Shilling.
This came amid an investor flight at the Nairobi Securities Exchange (NSE) as investors sought better returns mainly in the US market, where investments have been offering higher returns.
According to the Capital Markets Authority (CMA), investors in stocks at the bourse lost at least $3.3 billion in paper wealth last year on capital flight as the shilling slid against major currencies.
CMA quarterly statistical bulletin for the period ended December 31, 2023 shows the total market capitalisation at the Nairobi bourse closed at $8.8 billion.
In comparison, wealth erosion for the Nairobi bourse stood at 23.3 per cent in 2022 amounting to $3.8 billion while the performance of the NSE 20 index was largely unchanged, having fallen by 10.3 per cent.
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Impact of weak Kenyan Shilling on debt
The weakening shilling continues to pile pressure on the country’s economy with debt and the cost of living being components that remain heavily exposed.
It is estimated that Kenya’s stock of external debts and the cost of repayment is increasing by an average $19.4 million every day as the shilling sheds its value against the US dollar.
Central Bank of Kenya (CBK) data shows total debt stood at $65.4 billion as of September last year, with new loans in December pushing up the figure. Of this, $34.4 billion was external debt, while $30.4 billion were loans borrowed from the domestic market.
The shilling has remained vulnerable despite CBK’s move to increase its base lending rate to 12.5 per cent from 10.5 per cent in December review, a policy used by regulators banks to tame inflation while also stabilizing local currencies.
CBK’s Monetary Policy Committee (MPC) met on December 5, 2023, against a backdrop of continued global uncertainties, volatility in international oil prices, a weak global growth outlook, and escalation of geopolitical tensions, CBK governor Dr. Kamau Thugge said.
“In addition, the Committee noted persistent domestic inflationary pressures and a depreciating shilling. The MPC reviewed the outcomes of its previous decisions and measures implemented to mitigate the adverse economic impact and financial disruptions,” he noted in a statement.
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Kenya’s debt repayment obligations
The falling shilling is adding pressure to the government which is currently navigating a high debt repayment, amid low domestic revenues in the wake of a tough economic environment.
At the same time, the Kenya Revenue Authority is running behind its revenue target for the current financial year ending June 30, which had been set at $15.8 billion.
According to a report by the Parliamentary Budget Office, the government could miss its ordinary revenue target by about $1.8billion if the current trends continue. The taxman missed its target for quarter one of the current financial year by $446.2 million.
According to Kenya’s Office of the Controller of Budget, the country’s stock of US-denominated debt has woefully exposed the weak currency, leading to a significant jump in the debt stock.
Latest National Treasury data shows Kenya’s debt repayment reached $3.7 billion (Ksh600.73 billion) in 2023, with the high repayment hitting forex reserves.
Debt repayment consumed up to 57 per cent of tax revenues leaving the government with about 43 per cent to meet its recurrent and development expenditure plans, which has forced the country to continue borrowing to bridge the deficit.
The exchequer has revised upwards this year’s total public debt obligation to $11.5 billion from the initial estimated $10.8 billion, amid more loan disbursements mainly from the World Bank and the IMF.
Last Week, the International Monetary Fund (IMF) approved a $684.7 million loan facility for Kenya, giving the East African country the much-needed support to navigate financial pressures amid a maturing Eurobond, in June this year.
“We expect that by February when the World Bank board will sit down, the country will have all that is required and then in the next three years we have over 12 billion dollars available for us through concessional a window,” National Treasury Principal Secretary Chris Kiptoo told MPs last month.
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Kenya’s inflation
Meanwhile, the weakening shilling could expose Kenyan households to a higher cost of living as imports while driving up the cost of production, a move that will wipe gains made in recent in recent months of easing inflation.
According to KNBS, overall year-on-year inflation rate as measured by the Consumer Price Index (CPI) was 6.6 per cent in December 2023, down from 6.8 per cent in November and 6.9 per cent in October, respectively.
This was despite increases in prices of commodities under transport (11.7 per cent); housing, water, electricity, gas and other fuels (8.3 per cent); and Food and Non-Alcoholic Beverages (7.7 per cent) between December 2022 and December 2023.
These three divisions account for over 57 per cent of the weights of the 13 broad categories.
The Housing, Water, Electricity, Gas and Other Fuels’ Index increased by 0.4 per cent between November 2023 and December 2023 mainly due increase in prices of 200 kWh and 50 kWh of electricity by 1.0 per cent and 1.2 per cent, respectively.
The price of a litre of Kerosene dropped by 2.0 per cent during the same period.
“Despite a drop in the prices of petrol and diesel by 2.3 per cent and 1.0 per cent, respectively, between November 2023 and December 2023, the Transport Index went up by 0.5 per cent during the period, mainly due to increase in country bus fares for some routes,” KNBS director general Macdonald Obudho said.
With Kenya being a net importer, a weak currency means costly imports both finished goods and raw materials, with manufacturers and traders passing the costs to consumers, which will push up the cost of goods.
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