The Kenyan shilling, struggling under the weight of economic challenges, plunged to an all-time low, reaching 150 shillings to the US dollar on Monday. This depreciation has exacerbated existing problems, including soaring inflation rates and the implementation of new taxes, burdening Kenyan citizens.
The shilling’s decline has been a consistent trend over recent years, with a significant 24 percent loss in value over the past year. The primary drivers behind this financial predicament include Kenya’s rising national debt and declining government revenue.
According to data from the Central Bank of Kenya, the exchange rate hovered just above the 150-shilling mark. It’s noteworthy that certain commercial banks and foreign exchange bureaux have been trading the currency at or above this level in recent weeks.
Ken Gichinga, Chief Economist at Mentoria Economics, provides insights into the factors contributing to this financial setback. The situation is, in part, a response to the strength of the US dollar, which has been bolstered by the ongoing Middle East crisis, leading investors towards safe-haven assets. Additionally, high US treasury yields have impacted the value of the Kenyan shilling.
Kenya’s escalating national debt, which reached a staggering 10.1 trillion shillings (approximately $67 billion) by June, equivalent to about two-thirds of its GDP, is a significant concern. Servicing this debt, primarily to China, has become increasingly challenging as the shilling continues to depreciate. Compounding this issue, Kenya faces the maturity of a $2 billion eurobond in June next year.
The recent introduction of new and increased taxes by President William Ruto was a surprising move, given his election campaign promise to alleviate financial hardship for Kenyan citizens. The economy experienced a notable slowdown last year, with growth slowing from 7.6 percent in 2021 to 4.8 percent. This can be attributed to global factors such as the repercussions of Russia’s invasion of Ukraine and a devastating drought that severely affected Kenya’s vital agriculture sector.
Inflation remains a persistent concern, with an annual rate of 6.8 percent in September, driven in part by the continued rise in food and fuel prices, putting additional pressure on the wallets of ordinary Kenyans.
Kenya finds itself in a challenging economic landscape, and navigating these complex issues will require prudent economic management and strategic planning. As the Kenyan shilling continues its descent, it is clear that both citizens and policymakers face a formidable task in stabilizing the nation’s financial foundation.
Photo : Maina Andrew
By: Montel Kamau
Serrari Financial Analyst
23rd October, 2023
