Listen to This Article Enhance your reading experience by listening to this article.

Kenyan shilling has surged against the US dollar, climbing by 1.6 per cent to close at Sh132.9, up from Sh135 a week earlier. That marks a significant 15.3 per cent appreciation since the start of the year, a sharp reversal from the 26.8 per cent slump witnessed in 2023.

Analysts at Cytonn attribute this bullish trend to robust diaspora remittances and a thriving tourism sector, projecting the momentum to continue.

“During the week, the Kenya shilling gained against the US dollar by 1.6 per cent, to close at Sh132.9, from Sh135.1 recorded the previous week. On a year-to-date basis, the shilling has appreciated by 15.3 per cent against the dollar, a contrast to the 26.8 per cent depreciation recorded in 2023,” the Cytonn weekly analysis noted.

Over the past year leading to February 2024, Kenya’s diaspora remittances have swelled to $4.329.7 million (Sh571.5 billion), a 7.5 per cent uptick from the previous year’s $4,026.2 million (Sh531.5 billion). North America has emerged as significant contributor, funneling 56 per cent of the total, translating to a substantial Sh320.04 billion.

Tourist numbers

The tourism sector, too, is on an upswing, with receipts hitting $333.9 million (Sh44.1 billion) in 2023, marking a 24.6 per cent leap from 2022’s figures. The spike is credited to a 31.76 per cent boost in tourist numbers, reaching 1.95 million visitors by December 2023, up from 1.48 million the year before.

However, Cytonn experts caution that despite these gains, Kenya’s economic outlook for 2024 is not without its challenges. The high demand for foreign currency, necessitated by the servicing of government debt and the trade deficit, coupled with a current account deficit that stood at 3.5 per cent of gross domestic product (GDP) in third quarter of 2023, could exert pressure on the Shilling.

With 67.5 per cent of the nation’s external debt, equivalent to Sh4.2 trillion pegged to the dollar as of September 2023, and forex reserves at $7 billion (Sh924 billion), just shy of the optimal 4 months of import cover, the stability of the Kenyan currency hangs in the balance, hinging on prudent economic stewardship, Cytonn analysts said.

In a bold move to stabilise the shilling amidst economic challenges, the Central Bank of Kenya has implemented the largest rate hike in over a decade. The rate has been increased by 200 basis points, bringing it to 12.5 per cent. This strategic move is designed to alleviate pressures on the exchange rate and mitigate potential second-round effects. In addition to this, the government has sought financial assistance from international organisations. It has secured concessional multilateral borrowing especially from the International Monetary Fund (IMF), the World Bank. 

Bretton Woods institutions, comprising the International Monetary Fund (IMF) and World Bank, have stepped in with substantial financial support to Kenya’s economic stability. In a significant boost to Kenya’s economy, the Bretton Woods institutions, comprising IMF and World Bank, have stepped in with substantial financial support.

In a move that underscores their commitment to Kenya’s economic stability, the IMF disbursed a financing package of $682.3 million (Sh89.7 billion) in January 2024.  This followed a disbursement of $415.4 million (Sh54.6 billion) in July 2023, which included an augmentation of access amounting to $110.3 million (Sh14.5 billion).

Further bolstering Kenya’s economic resilience, the IMF Executive Board approved a 20-month arrangement under the Resilience and Sustainability Facility (RSF), amounting to about $551.4 million (Sh72.5 billion).

These funds have been instrumental in strengthening the Kenyan Shilling, underscoring the critical role of international financial institutions in bolstering the national economy.