Why the Kenyan shilling has been on a free fall against the US dollar, Report
Parliamentary Budget Office in its 2023 report explains why the Kenyan shilling has been on a free fall against the US dollar
Parliamentary Budget Office in its 2023 report explains why the Kenyan shilling has been on a free fall against the US dollar.
The analysis showed that the present fall was caused by events that occurred in the 2020–2021 fiscal year, despite the fact that Ruto’s government has been criticized by the opposition for the devaluing shilling and accompanying increase in the cost of living.
The report identified three causes for shilling’s decline against the dollar, mostly clearing the Kenya Kwanza government.
“The US Dollar appreciated against the Kenyan Shilling from 109.8 in January 2021 to 123.9 in January 2023.
“Similarly, the Kenyan Shilling has also depreciated against the Pound Sterling from 149.8 in January 2021 to 151.3 in October 2022 and against the Euro from 133.8 to 133.4 in the same period,” the report captured the depreciation.
The report showed that Kenya’s weak shilling relative to the dollar was not an isolated incident, despite the Azimio coalition’s accusations that Ruto is to blame for the economic unrest brought on by the weak shilling.
“Most countries across the world have experienced a weakening of their currency because of capital flight,” the report explained.
Capital flight is when money or assets rapidly flow out of a country due to an event of economic consequence like bad monetary policies from the government.
Capital Markets Authority (CMA) on January 31, 2023, explained how capital flight in recent years had affected the Kenyan economy.
“Foreign investors are shying away from Kenya’s capital markets due to a lack of adequate foreign exchange to invest in securities at the Nairobi bourse and repatriate accrued dividends and returns,” CMA warned.
US Africa Command (USAFRICOM) to conduct the largest military exercise in Kenya
U.S announces Ksh3.7 Billion funding to Kenya
Bill Gates Foundation announces largest ever annual budget
The report in a further exoneration of Ruto’s government revealed that the country had rapidly depleted its foreign exchange reserves in 2021.
“The Shilling has also been weakened by a deterioration in the foreign exchange reserves with the months of import cover declining from 4.9 in January 2021 to 3.9 in January 2023,” the report stated.
Import cover is the number of months of imports a country can cover using its international reserves and is used as an indicator of the country’s currency stability.
According to the report, the Kenyan shilling was also hard-hit by servicing a huge external debt that is majorly US dollars dominated.
Ruto inherited an external debt of Ksh10 trillion from his predecessor Uhuru Kenyatta and the government has continued to repay the debt which has greatly weakened the shilling.
Also read,
Kenya-USA completes first round of Trade and Investment Partnership
KNEC issues new guidelines on KCPE, KCSE registration
Ruto sacks over 100 Uhuru appointees in parastatal changes
Follow us
