The Central Bank of Kenya (CBK) Governor Kamau Thugge said that potential investors have been withholding their money while others withdrew their investment from the region exposing the shilling to more shocks.
According to the Central Bank investor apathy caused by uncertainty on the repayment of the $2 billion (Sh300 billion) Eurobond maturing next year is partly to blame for the depreciation of the shilling.
The Kenyan currency hit an all-time official low of 150 shillings to the dollar on Monday, worsening the economic situation in the country plagued by high inflation and debts.
The shilling's depreciation has accelerated over the past year, losing almost 24 per cent of its value against the dollar.
According to CBK, a dollar was selling at 150 shillings on Monday, while some commercial banks and exchange bureaus had already reached this price, or even higher, in recent weeks.
Thugge told the National Assembly’s Finance Committee that the government has picked Citi and South Africa's Standard Group to advise it on how to handle a $2 billion Eurobond that is maturing in June 2024.
“This has brought stability and confidence in the local market. There was a misunderstanding about what would be done about the Eurobond. We have witnessed increased pressures to contain the rising of the local currency that has always been overvalued,” said the CBK governor.
This depreciation has made imports more expensive while at the same time pushed up Kenya's debt, which stood at more than Sh10.1 billion at the end of June, according to National Treasury figures, or around two-thirds of gross domestic product.
Repaying this debt, particularly to China, is becoming increasingly costly for the government, with mega loans due in June.
The devaluation of the shilling has further increased pressure on the forex reserves, which fell to a new low.
Last week forex reserves dipped to a low of $6,833 million (Sh1 trillion) just about 3.67 months of import cover from, $6,872 million (Sh1.01 trillion) a week earlier.
Thugge said attracting more remittance inflows and continued reforms of the interbank market are the short-term measures that are ongoing.
He said that talks are also at an advanced stage over loans that will ease pressure on the reserves going into 2024.
“We are expecting $400 million in IMF funding to replace the local expensive loans. By March 2024 we will have received $750 million (Sh112.7 billion) which will go a long way in ensuring the stability of the local currency,” said Thugge
The expected inflows from multilateral, bilateral and regional development financial institutions are also expected to shore up the reserves.
Among other measures that CBK says are on course is the implementation of medium to long-term measures to attract more forex inflows by attracting more financial inflows through FDI and other private sector inflows.
He added that the government is also working to improve competitiveness to encourage more exports of goods through market diversification and trade facilitation.
In comparison to other regional currencies, the shilling loss against the dollar this year stands out.
The Uganda shilling, for instance, has depreciated by 0.96 per cent to the greenback since January, while the Tanzania unit has shed 6.8 per cent the Rwandan Franc has appreciated by 14 per cent to the US currency since the turn of the year.