Nairobi, Kenya | By Michael Wandati | The Kenya Shilling has been experiencing a consistent decline when compared to various currencies, both on a global scale and within the East African region. Notably, it has weakened against major currencies like the US Dollar, as well as regional currencies like the Uganda and Tanzania Shilling.
In the past, the Uganda Shilling held a stable exchange rate of approximately 30 Shillings to one Kenyan Shilling, with just 100 Kenyan Shillings equivalent to one US Dollar. However, the current scenario shows a significant shift, with the Kenyan currency now valued at around 25.74 Uganda Shillings per Kenyan Shilling, while the US Dollar is exchanged for 146 Kenyan Shillings, as per reports from the central banks of Uganda and Kenya.
The depreciation trend extends to other neighboring currencies as well. The Kenyan Shilling has marginally depreciated against the Tanzania Shilling, from 18.2 to 17.26 at the beginning of the year.
Similarly, its value has declined against the Rwanda Franc, from 8.7 to 8.26. Nonetheless, the most significant decline is observed in relation to the Ugandan currency, which has been appreciating against many global currencies.
Across the East African Community (EAC) partner states, all currencies except the Ugandan Shilling have experienced depreciation against the US Dollar. The Ministry of Finance, Planning, and Economic Development reported that Uganda’s currency appreciated by 0.6 per cent, while Burundi recorded the highest depreciation at 3.8 per cent, followed by Rwanda, Kenya, and Tanzania with depreciation rates of 2.2 per cent, 1.8 per cent, and 0.3 per cent, respectively.
The reasons behind the Kenyan Shilling’s devaluation are manifold. Notably, the increase in exports has contributed to the stability of the Uganda Shilling. Furthermore, the scarcity of US Dollars in Kenya and the weakened Kenyan Shilling have made the market less attractive for Ugandans and other exporters.
As a result, Kenyan products have become comparatively cheaper for Ugandan buyers, leading to an increase in exports from Kenya to Uganda.
This situation has also affected investor confidence, prompting some to seek forex transactions in other countries like Uganda and Tanzania or divert their investments to alternative destinations, including Ethiopia. Political chaos in Kenya has been cited as a factor influencing these decisions.
Overall, the currency turmoil in Kenya can be attributed to various factors, including volatility in global currencies after the lifting of COVID-19 lockdowns, rising fuel prices, higher interest rates in developed countries affecting frontier markets, and disruptions caused by geopolitical events like the Russian war on Ukraine.
Additionally, Kenya’s measures, such as heavy subsidies for fuel, have affected foreign reserves and the central bank’s ability to support the currency amidst existing shocks. The introduction of new tax measures has further heightened uncertainty among investors.
As the situation continues to unfold, it remains to be seen how far and how long the currency crisis in Kenya will persist, given the interplay of political unrest and economic challenges.
The Kenyan government faces an uphill task in stabilizing its currency and regaining investor confidence. President William Ruto’s earlier prediction of the Shilling regaining strength against the US Dollar seems to have fallen short, leaving authorities with the challenge of implementing measures to address the depreciation.
One potential avenue for improving the currency’s value lies in enhancing export activities. Uganda’s success in this area indicates that boosting export values can positively impact a country’s currency.
Kenyan policymakers may need to focus on supporting local industries, encouraging foreign investments, and strengthening trade relationships with neighboring countries to increase exports.
Moreover, addressing the issue of scarcity of US Dollars within the country is crucial. It may require strategic monetary policies, such as encouraging foreign investments and managing imports more effectively, to ensure a sufficient supply of foreign currency.
Addressing political instability is also vital to restore investor confidence. A stable and conducive political environment is essential for attracting both local and foreign investments. The Kenyan government must work towards resolving any political issues and creating an environment that fosters economic growth and stability.
In conclusion, the steady decline of the Kenyan Shilling against various currencies poses significant economic challenges for the country. The situation requires prompt and coordinated efforts from the government and financial authorities to stabilize the currency and regain investor confidence.
Addressing issues related to exports, foreign reserves, and political stability will be crucial in navigating through the currency crisis and charting a path towards economic recovery and growth for Kenya.