The sustained and relentless depreciation of the Shilling has been puzzling to me. But what is more puzzling is that no one authoritative has come out to try and explain what’s happening.
We are in a vicious downward cycle caused by debt uncertainty. And WITHOUT A CIRCUIT BREAKER, the DEPRECIATION WILL CONTINUE.
From an exchange rate of 123 in January to 150 in August, the value of Kenya’s $27 bn external debt, without borrowing more, has increased by KES. 700bn.
That’s massive; it’s about 5% of GDP. That is debt value piling up without corresponding cash inflow, economic activity or output.
As the Shilling depreciates, the value of this debt increases. As the value of the debt increases, the Shilling depreciates again… vicious cycle. Hence, what we need is a circuit breaker to stop this vicious cycle.
I can only see one of two breakers – a clear debt reduction plan that the market can believe in OR coming out and asking some of it to be haircut.
What do you think is the circuit breaker?
