The Kenyan shilling has fallen to a new all-time low of 136.02 to the dollar, exposing the country to higher import costs and difficulties in paying off its debt.
Despite the launch of the forex symbol by the main bank and a government agreement to import oil on credit from the Gulf states, the national currency has fallen from an average of 135.9 Kenyan shillings a day, according to the Central Bank of Kenya (CBK).
The shilling has been under pressure since mid-2021, when it settled at Ksh 106.54 on a combination of weak inflows and high dollar demand.
The shilling lost 9% of its value in the 12 months to December last year, driving up the cost of living and hurting consumers already faced with higher food and petrol prices.
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The sharp hike in US interest rates to combat inflation made matters much worse by causing persistent dollar shortages in the domestic market.
The volatility of the shilling will increase the amount spent by importers to get items to manufacturers as raw materials, increasing the upfront cost for businesses, who will pass the higher cost on to consumers.
Petroleum commodities, equipment, medicines, machinery, medical supplies, vegetable oils, vehicles, wheat and clothing are among Kenya’s largest imports.
In addition, due to the impact of dollar appreciation on domestic households, the depreciation of the shilling is expected to result in higher electricity prices through higher exchange rates on utility bills.
A weak shilling means more problems for the Kenyan government in terms of its foreign debt repayment obligations.
For example, the weakening of the shilling caused a massive Ksh19.3 billion (US$141.9 million) surge in foreign interest payments in the eight months to February, underscoring the disastrous impact on debt servicing.
