Kenyans stare at costly festivities as shilling loses more ground to dollar

Friday, December 4th, 2020 00:00 |
Money. Photo/File

Kenya shilling slid further against the US dollar yesterday exposing Kenyans to a costly holiday and uncertainty in the New Year.

Traders at various banks who did not want to be identified quoted the shilling at between Sh112 and Sh114 to the dollar.

The currency has seen a more than 10 per cent depreciation since February due to reduced inflows and demand from importers.

Coronavirus pandemic has curtailed tourism’s hard currency earnings and even as lockdowns keep cut flower buyers in Europe indoors forcing many out of jobs.

This means that oil imports will arrive at a higher price passing the effects to the cost of transport and energy.

A weak shilling affects almost every sector because Kenya is a net importer of goods. However, exporters of Avocado, coffee, macadamia, flowers and tea are among others will be the key winners.

Kenyan Manufacturers who export will also gain from the favourable exchange rate. The country exports cement, flour, steel, petroleum products and other processed products.

The stock of Kenya’s exports is very small and cannot bring a net positive impact due to a heavy import bill and heavy debt burden.

Car prices, machinery imports , solar modules and other imports will be expensive going forward even as Treasury signals that the outlook is not good.

Experts from Cytonn Investments say they expect continued pressures on the Kenyan shilling in the coming months.

The unit could fall further as corporate demand returns in the New Year after the December lull.

 Unnecessary imports 

On the flipside, however, the currency could reduce unnecessary imports while boosting demand for local products hence driving buy Kenya build Kenya mantra.

Strong remittance inflows are perhaps one of the few pillars on which the shilling is leaning, helped by foreign investor interest in the capital markets.

A significant fall in the shilling could make Kenya unable to service foreign debt, forcing a default.

Kenya’s debt accelerated by nearly Sh2 trillion in about one year thanks to Covid-19 loans. The pandemic found an economy saddled by debt while Treasury was unable to pay government contractors.

Kenya’s hopes of to salvaging her current account deficit with oil exports were battered after Tullow oil differed its Final Investment Decision while prices remain weak.

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