The depreciation of the Kenya shilling has been a big headache for the government, with the shilling on a downward spree since September 2021. So far, the shilling has depreciated by 14.3% on a year-to-date basis against the US dollar.
The major contributors to the downward spree are the persistently high dollar demand from importers coupled with the government’s debt servicing obligations, given that 67.3% of Kenya’s external debt is dollar-dominated.
Read more: Kenya Shilling Expected to Hit the 150 Mark Against the Dollar by June Next Year
With Kenya being a net importer, the depreciation of the Kenyan shilling has continued to make imports expensive. This has been a huge burden for Kenyans, reducing their disposable income due to the elevated cost of living.
The Kenyan government has implemented various initiatives geared towards the resuscitation of the shilling’s performance against foreign currency, with the main focus being to reduce the demand for the US dollar and reduce the reliance on foreign debt to fund its operations.
Read more: Kenya Shilling to Continue Depreciating- Absa Bank Report
Kenya signed a State-backed deal with Saudi Aramco (ARAMCO), Emirates National Oil Corporation (ENOC) and Abu Dhabi National Oil Corporation Global Trading (ADNOC) in April 2023 to supply Kenya with diesel and super petrol on credit. The move is meant to ease the pressure on the forex demand by delaying the payments due by six months, thereby allowing the local firms to pay the three Gulf firms in Kenya shillings.
The Energy and Petroleum Cabinet Secretary, Mr. Davis Chirchir, told the lawmakers yesterday that it had struck a deal with the three Gulf firms to lower the cost of fuel that was supplied on credit, a move aimed at reducing the prices of fuel in the country.
Read more: We Expect A Continued Depreciation Of The Shilling-Cytonn Report
Additionally, the Central Bank of Kenya (CBK) issued the Foreign Exchange Code on 22nd March 2023 to regulate the wholesale transactions of the foreign exchange market by commercial banks in Kenya. The move was in response to the wide variation of the exchange rate in the market, with the majority of commercial banks quoting exorbitantly high exchange rates, especially on the selling rates of the US dollar, as compared to the official rates quoted by the Central Bank, necessitating the need for uniform regulations to control the situation.
Other initiatives taken by the government include improving diaspora remittances and promoting the tourism industry to bring in much-needed foreign currencies.
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