Africa (Commonwealth Union) _ Kenya’s currency, the shilling, is experiencing a historic low, trading at 150 shillings to the dollar, a 24% decrease year-on-year. The governor of the Central Bank of Kenya, Kamau Thugge, acknowledged that the shilling had been overvalued for several years. In 2018, one dollar was equivalent to 100 shillings.
Thugge revealed that around five years ago, both the International Monetary Fund (IMF) and the World Bank considered the shilling to be overvalued by 20% to 25%. Despite efforts to maintain a strong exchange rate, Thugge noted that this came at the cost of depleting international reserves. Kenya’s foreign exchange reserves now cover less than four months’ worth of imports, though Thugge reassured that this is still adequate for handling emergencies.
The current low exchange rate is attributed to the U.S. dollar’s strength, influenced in part by high yields on U.S. Treasury bonds. This depreciation makes imports more expensive and contributes to Kenya’s substantial debt burden, which exceeded 10,100 billion shillings (64.4 billion euros) in June, approximately two-thirds of the country’s gross domestic product.
President William Ruto, who assumed office in August 2022, has implemented tax hikes and new taxes to boost government revenue and address the country’s financial challenges. However, these measures are impacting purchasing power and causing dissatisfaction among the population. Despite campaign promises to alleviate financial difficulties for the poorest citizens, the economic challenges persist.
Kenya’s economy, a key player in East Africa, faced significant disruptions from the COVID-19 pandemic, the repercussions of the war in Ukraine, and a severe drought in the Horn of Africa. Economic growth slowed to 4.8% in the previous year, down from 7.6% in 2021, with growth forecasts for 2023 lower than those for 2022.
