Weak Kenya shilling hits debt repair
By John Otini, January 19, 2023Kenya’s shilling has depreciated further against the dollar, with official government data putting it at Sh124 for every green buck, raising the risk of a high government debt service bill.
The currency traded at Sh122 units per dollar late last year, but has since lost nearly two units in about one month, increasing the cost of imports including food and medical products.
According to experts, the devaluation of the shilling as a result of a weakened accumulation of dollar holdings by locals and businesses, is mostly responsible for the increase in foreign deposits.
Last week on Friday, the shilling was trading at Sh123.70 to the dollar, but heavy demand for the green buck by importers has weighed on the exchange rate.
IMF report
“It exchanged at Sh123.78 per dollar on January 12, compared to Sh123.48 per dollar on January 5,” said CBK in its latest bulletin.
Recent International Monetary Fund (IMF) data says Kenya is experiencing a tight period of forex demand coupled with reduced liquidity in the interbank foreign exchange market.
“Liquidity in the interbank forex market has dried up and shifted to the bank-client market where forex transactions are executed at a more depreciated rate,,” said IMF.
This as some Kenyans and businesses entities amass US dollars in their bank accounts, further adding to the problem due to hoarding of dollars.
Treasury noted last year that the exchange rate was partly responsible for Kenya’s rising public debt.
“The increase in the public debt is attributed to external loan disbursements, exchange rate fluctuation and the uptake of domestic debt during the period,” Treasury stated in the 2021/22 last quarterly budget and economic review report.
The increase in the external debt burden soared despite the government’s spending to service loans from other countries,
By last November, wealthy Kenyans and businesses had accumulated a record Sh922 billion in dollars as they attempted to protect the value of their bank savings in the face of the falling shilling.
This was after they added Sh119.24 billion more in the 11 months leading up to November 2022, continuing a trend that has put pressure on the local currency.
The deposits in foreign currency grew from Sh803.66 billion at the beginning of the year, marking a 14.8 per cent gain, according to figures from the Central Bank.