The losses, major concerns as Kenya Shilling claws back against Dollar

The currency, whose average exchange against the dollar was above 160 just weeks ago, has now appreciated, where one dollar is now equal to Ksh. 134. 

According to President William Ruto, the shilling’s appreciation is a sign that Kenya’s economy, which was once ‘in the trenches’ has been salvaged. 

“Kenya’s economy was in the trenches but I have saved it. Now, as you can see, even the dollar price has gone down and things are in order,” Ruto said at a roadside rally in Kericho town on March 14, 2024. 

However, as many rejoice over the steady gain, few factors have left some Kenyans concerned. 

THE DIASPORA PINCH 

The latest Central Bank of Kenya (CBK’s) data records indicate the diaspora remittance inflows for February 2024, was Ksh.52.2 billion, which is 6.4 per cent lower than January 2024. The USA diaspora has remained the single biggest contributor to these remittances at over fifty-four per cent of the total remittances for the past month. 

In January 2024, according to the same data set, a record-high remittance level of $412.4 million was sent to Kenya within the month. 

This indicates a fall in remittances from the diaspora as the shilling appreciates; hence, the recipients have less money to spend or invest locally.

THE CBR RISE TO 13%

At around mid-January this year, the Kenya shilling fell to the lowest level of forex trading against hard currencies, specifically the USD when it crossed over the Ksh.160 mark to the USD. 

The Central Bank of Kenya (CBK), then, blamed the woes of the KES on the pressure piled on it by the $2B Eurobond whose maturity is due. 

The CBK, probably exasperated by the turn of events, hiked the Central Bank Rate (CBR) to 12.5 per cent in December 2023, and in February 2024 hiked it further to 13 per cent in an attempt to stabilize the shilling's valuation and check its rapid depreciation. Not much changed in the short term.

EUROBOND BUYBACK AND LOANS GIVE FRESH BREATH 

Shortly after, in February 2024, the Treasury pulled the rabbit out of going back to the international markets to source for $1.5B Eurobond to execute a buyback of the maturing $2 billion Eurobond hence injecting confidence in the local currency almost immediately.

To add cream to the cake, the loans extended to Kenya by the International Monetary Fund (IMF) – Ksh.109 billion and the Trade Development Bank (TDB)- Ksh.33.9 billion shored up the flagging confidence in the Kenya Shilling.

The confetti on the cake was the issuance of the tax-free over-subscribed Ksh.70B Infrastructure Bond (IFB) by the government of Kenya.

Away from the woes of January 2024 and the past year, the KES has been on a bullish counter-run against the hard currencies which have seen it claw back lost ground to close trading at around Ksh.130 to the USD last week.

It opened up trading today at Ksh.134 to the USD, which is a far cry from the whip lashing it received for the past year culminating in the ignominious Ksh.160/1 USD it dropped to in mid-January.

ANXIETY AS THE SHILLING CLAWS BACK 

The aggressive turnaround performance by the local currency is certainly sending many stakeholders back to the drawing board, their brows all knit up in anxiety.

Central Bank of Kenya (CBK) data in February 2024 indicated higher levels of foreign currency deposits held by companies at Ksh.973 billion by the close of the third quarter of 2023; while KES418 billion was held in hard currency deposits by individuals.

These deposits by companies represent seventy percent of all forex deposits in Kenyan banks which stood at Ksh.1.39 trillion at the end of the same period. This could be looked at in retrospect to the second and third quarters of 2019 when hard currency company-held deposits stood at only fifty-six per cent. 

A REBOUNDING SHILLING? 

Exporters, financial institutions and individuals whose levels of USD with high hard currency deposits must be scratching their heads in dismay because to proceed to offload the deposits onto the market would just worsen things. Exporters are certainly receiving less today than they did over the last few months. 

The few commodities and produce exporters from Kenya to the world will certainly have to go back to the drawing board especially if they had drawn long-term plans on the back of a weak shilling.

Employees who receive or had recently negotiated their pay in USD could be in for soul searching as are the landlords who charge their lessees in hard currency. 

Kenya Power, having been given the go-ahead to charge some of its select clients in hard currency must be looking at the unfolding scenario with much interest; might it after all turn out to be counter-productive?

THE G-TO-G OIL DEAL DILEMMA  

The opaque details of the government-to-government oil deal come to mind with the strengthening shilling; will the public reap big from this arrangement when the shilling strengthens or it is of no consequence? 

Just three days ago the monthly fuel price review saw fuel prices drop, was the strengthening shilling a factor? The fuel hedging deal Kenya Airways struck with jet fuel suppliers that came to haunt it later is still fresh in the public arena.

SHILLING NOT OUT THE WOODS YET 

Nevertheless, Kenya's overall socio-economic policies and public debt challenges cast a dark shadow on the country’s economic health, and the shilling’s woes are still far from over. To have a stable shilling that commands respect will require a robust export-focused economy, a vibrant manufacturing sector and a very pragmatic debt management approach. 

An economy that will boost diaspora confidence to not only send personal remittance back home but also investback home in sound projects with good return-on-investments (ROIs) levels. Kenya needs to further expand its tourism offerings beyond the sun and sand tour circuits. There is a need to utilize the good white papers that have rooted for expansion of the offerings within the local tour circuits to include the western and northern circuits and making maximum use of its natural attractiveness as a conference destination. 

There is also the potential to market the country as a health service provider (health tourism) in Africa owing to its advanced medical facilities and well-trained personnel. However, the government's focus now on is creating a formidable immigrant workforce, especially in the health sector and this has its own pitfalls that are not so obvious currently.

Good execution of these measures would strengthen the forex essentials in favour of Kenya shilling while containing fear-mongering that runs rife in money markets to reveal the true valuation of the local currency while nurturing a solid socio-economic development.