Kenya hopes de-dollarisation by BRIC countries will help ease the dollar crisis in the country.
Treasury Cabinet Secretary Njuguna Ndung’u stated to the National Assembly on Wednesday that Kenya is relying on the BRICS nations; India, China, Saudi Arabia, and Russia to resolve the country’s dollar crisis.
In response to questioning from MPs regarding the steps his ministry is taking to address the shortage in dollar supply, Prof. Njuguna blamed Kenya’s trade deficit with the other five countries for the nation’s current currency crisis.
According to the CS, Kenya’s economy will start to revive after the five nations de-dollarize their economies.
Ndung’u informed the lawmakers that the five nations accounted for 43.7% of Kenya’s total imports during the year ending in May 2023.
When questioned about how this was affecting trade in Kenya and contributing to the dollar crisis, the CS revealed that the trade imbalance has compounded the foreign exchange issue.
These nations contribute to nearly 70% of Kenya’s trade imbalance, according to the Treasury CS.
Kenya has a large trade relationship with China, whose imports account for 19.3% of all Kenyan imports.
In contrast, Kenya’s exports to China account for only 3.1% of its total goods exports.
“Exports to India, China, Saudi Arabia, Russia, and Malaysia accounted for 1.0 percent, 3.1 percent, 1.4 percent, 0.6 percent, and 0.3 percent, respectively, in the year to May 2023,” the CS noted on the imbalance of trade.
“The main products exported to these countries are tea, fruits, vegetables and cut flowers. Fish also accounts for a significant proportion of exports to China.”
The Treasury reports that Kenya primarily imports items such as oil, machinery, transport equipment, and raw materials (ores) from five countries.
The predominant currency for trade with these foreign nations is the US dollar.
Given Kenya’s higher imports compared to exports, it often needs to tap into its limited dollar reserves to cover the trade deficit.
“Kenya’s trade deficit with these countries amounted to US$ 11.8 billion and US$ 11 billion in the years to May 2022 and May 2023, respectively.
Therefore, domestic demand for US dollars would significantly reduce if de-dollarization in the respective trade partner countries progresses,” Ndung’u explained how de-dollarization would help Kenya’s economy.
If these countries were to adopt a different currency for trade, Kenya could preserve more of its dollar reserves for transactions with Western nations.
This, in turn, will help stabilize the exchange rate of the Kenyan shilling against the dollar.
During a BRICS Summit in South Africa in August, Brazilian President Luiz Inacio Lula da Silva advocated for member countries to explore the creation of a common currency for trade and investment as a means to reduce reliance on the US dollar.