- Kenya's economy has suffered due to challenges such as COVID-19, the war in Ukraine, and a drought.
- The Kenyan shilling has lost 24% of its value against the US dollar in the past year.
Kenya's currency, the shilling, hit a record low on Monday, exchanging at 150 shillings to the US dollar, as per data from the Central Bank of Kenya.
This depreciation has deepened the economic challenges Kenya faces, a nation already grappling with inflation and a substantial debt burden.
Over the past year, the Kenyan shilling has steadily declined, losing nearly 24% of its value against the US dollar.
Kenya Currency at an All-Time Low
The Kenyan shilling has been on a downward spiral for the past year, losing nearly 24% of its value against the US dollar.
On Monday, the Central Bank of Kenya reported that a single US dollar was being traded for 150 Kenyan shillings. In recent weeks, some commercial banks and foreign exchange bureaus have already quoted this rate or even higher.
Causes of the Currency Decline
The primary driver of this depreciation is the strengthening of the US dollar. Several factors have contributed to this, including the recent crisis in the Middle East, which has prompted investors to seek safer assets. Additionally, high yields on US Treasury bonds have attracted global capital, further bolstering the US dollar's value.
Rising Costs and Debt Burden
The plummeting value of the Kenyan shilling has huge consequences. It makes imports more expensive, putting pressure on the Kenyan economy.
Kenya's national debt, which stood at over 10,100 billion shillings (equivalent to 64.4 billion euros) at the end of June, is about two-thirds of the country's gross domestic product. The cost of servicing this debt, especially to creditors like China, is becoming increasingly burdensome for the government.
Impact of Recent Crises
Kenya's economy has faced by multiple challenges over the past years, starting with the global pandemic, COVID-19. This was followed by the shockwaves of the war in Ukraine and a historic drought in the Horn of Africa.
These events had a substantial impact, causing economic growth to slow down to 4.8% last year, compared to 7.6% in 2021. The economic outlook for 2023 appears to be less promising than the previous year.
Government Perspective and Response
Kamau Thugge, the governor of the Central Bank of Kenya, disclosed to a parliamentary committee that the shilling had been overvalued for several years.
He stated, "I think for several years now, we have had an overvalued exchange rate. We have tried to maintain a fairly strong exchange rate artificially at the cost of losing international reserves."
Thugge went on to say that around five years ago, the International Monetary Fund and the World Bank assessed that the shilling was overvalued by 20% to 25%.
He also noted that the country's foreign exchange reserves were sufficient to cover less than four months' worth of imports, which, although adequate for emergencies, remained a concerning statistic.
To address these economic difficulties, President William Ruto introduced several new and increased taxes earlier this year with the aim of replenishing government finances.
This move, however, came despite campaign promises made during the previous year's election to alleviate financial hardships for ordinary Kenyan citizens.
Inflation remains a persistent problem, with an annual rate of 6.8% in September. The cost of living continues to rise, particularly concerning food and fuel prices.
The challenges facing Kenya's economy are formidable, and efforts to stabilize the currency and improve the overall economic situation will likely remain a top priority for the government.
The depreciation of the value of the Kenyan shilling to an all-time low of 150 shillings to the dollar underscores the economic challenges that Kenya is currently dealing with. The depreciation, driven by the strengthening of the US dollar, has made imports more expensive and increased the country's debt burden.
The government faces mounting pressure to service its debt, particularly to China. In addition to these economic woes, Kenya has had to contend with a series of crises, including the COVID-19 pandemic, the fallout from the war in Ukraine, and a devastating drought.
While the government has introduced new taxes to replenish its finances, inflation remains high, and the economic outlook for 2023 is less optimistic than in previous years. Kenya's efforts to stabilize its currency and address these economic challenges will undoubtedly shape its future.