The Shilling will continue shedding its value against the US dollar for the remaining quarters this year, rallying to a low of 150 come December, a new report now says.
The Absa Bank Kenya 2023 Macroeconomic Outlook and risk management report’ released yesterday notes that the shilling will continue weakening despite the slight ease in global economic constraints.
According to Jeff Gable, the head of FICC Research and chief economist for Absa, the local currency was projected sometime last year to continue weakening to a better part this year, on the back of hiked interest rates by global lenders in efforts to curb inflation.
He added that they expect inflation to moderate and revert to the Central Bank’s 2.5 percent to 7.5 percent target by June this year.
Further forecasts are that the Monetary Policy Committee (MPC) will hold rates steady but with risks to the upside.
“Nevertheless, the global tightening and domestic inflation surprises are the key elements to watch for their impact on the dwindling shilling,” the report reads in part.
Read: Kenya Targets Kshs 136.5 Billion Loan from The World Bank
The shilling has been on a losing streak against the dollar since early 2020.
Year-to-date, the shilling has weakened by about 18 percent to hit a low of 136.7 yesterday, prompting costlier imports, rising debt burden and more pressure on the dwindling forex reserves which act as buffers to potential external shocks for the country.
The weakening shilling has had a spiral effect on the economy littered with high debt obligations.
The present value of the country’s debt as a percentage of GDP is at 60 percent, worth Kshs 9.4 trillion, the expected hit-mark as at the end of June this year.
Data by the National Treasury in December last year shows the government owed Kshs 4.7 trillion in external debt and Kshs 4.5 trillion in domestic debt.
This forced the government to dip into forex reserves for loan servicing in the wake of maturing foreign debts, a situation that has triggered a tremor in the country’s buffers.
Latest data by the Central Bank of Kenya shows the usable foreign exchange reserves stood at 3.6 months of import cover as of May this year, a breach to the statutory requirement of at least four months of import cover.
However, the regulator maintained a brave face saying that the reserves were adequate.
With the government enforcing various options for debt servicing, the report notes that the country has already been ranked by the IMF as being at a high risk of debt distress.
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