Kenya is staring at increased dollar shortage that could push a unit close to Sh160 to the dollar as the country pays its first instalment of a state-to-state Gulf oil deal, experts say.
This is even as the Kenya Kwanza government extended the deal to December 2024 after saying it had re-negotiated for better terms.
The country is expected to wire $500 million (Sh73 billion) to Emirates National Oil, and Abu Dhabi National Oil and Saudi Aramco on September 26 amid dropping levels of foreign reserves.
The latest data by the Central Bank of Kenya shows that usable foreign exchange reserves remained adequate at $7.06 billion (3.8 months of import cover) as of September 14.
This is below both national and East African statutory requirements that call for at least four months of import cover or 4.5 months respectively.
Daniel Musila, an FX expert at Triangle Capital yesterday told the Star that the country should expect a more serious dollar shortage crisis starting next week when the first instalment of the plan is settled by KCB Group.
He said the state-to-state oil plan only postponed the situation and maintained his prediction that the shilling will hit Sh150 by next week stands.
"We used to pluck $500 million per month, quite comfortably but taking eight times the amount at a go bleeds trouble,'' Musila told the Star.
He said that if made the payment will have a devastating effect on the shilling, which has since shot up by more 22 per cent in the past 12 months.
Julie Wairimu, a forex trader in Nairobi who says that the government gambled with the idea, supports his position.
"Although Kenya is blaming high fuel prices on hikes in the global rates, I wait to see what happens to both the shilling, inflation and fuel prices in coming months till the end of the now extended plan,'' Wairimu said.
She added that unless the Central Bank of Kenya comes up with another jumbo raise in the upcoming base lending review, the shilling would tumble to unimaginable levels before December.
On Wednesday, the government announced it had extended the oil importation plan with three state-owned Gulf firms in an effort to ease the high dollar demand that continues to pin down the local currency.
Yesterday, the shilling dropped further against the US dollar to trade at 147.30 units in the official market and a high of 154 units in the parallel market.
The Energy and Petroleum Regulatory Authority (EPRA) boss Daniel Kiptoo told the press that the deal was struck late last month.
The three firms first won tenders for the contracts in March.
While Saudi Aramco has been supplying two cargoes each for diesel and Super petrol every month ENOC supplied three cargoes of Super petrol every month.
"The plan was extended to December 2024 following fruitful negotiations aimed at driving down the freight and costs,'' Kiptoo said.
Kenya previously depended on local oil marketers to bring in petroleum products every month on a rotational basis, a move the government says has been hurting the FX market, considering that oil imports account for 28 per cent of dollar demand.
The government nationalised the importation of fuel this year as part of a broader strategy to ease pressure on the nation’s dollar reserves.
Under the deal, Kenya was asked to defer payments for six months, compared to a previous requirement in which it required $500 million a month to pay for cargo within a week of delivery.
Critics say the deal had negatively impacted on the forex market but Kiptoo defended it saying it has lowered the cost of transporting oil to the country, the premium and eased high dollar demand.
Last week, the government announced an upward review in monthly fuel prices, with a litre of Super petrol now retailing at Sh211, having gone up by close to Sh17.
A litre of diesel increased by about Sh21.32 per litre while that of kerosene increased by Sh33.13 to Sh202.61.
Prior to the latest review, petrol, diesel, and kerosene in Nairobi were retailing at Sh194.68, Sh179.67, and Sh169.48 respectively.
