- The usable foreign exchange reserves remained at $6,829 million (Sh1.1 trillion) (3.7 months of import cover) as at January 11.
- Latest data by CBK quoted the external debt at Sh5.67 trillion as of September 2023, rising by about 36 per cent since December 2021.
Continued debt service burden, a persistent current account deficit and dwindling forex reserves are among factors projected to put the shilling under continued pressure this year.
This will see the local currency lose more unit values against the global benchmark, the dollar.
Year-to-date, the local currency has already shed about 29 per cent of its value against the greenback.
It crossed the 160 mark on Tuesday to trade at 160.18, according to CBK's official data, and has hit past 200-unit mark against the Sterling Pound.
Latest report by Stears, a Nigerian-based economic analysis and data driven insights company on Monday projected the shilling would cross the 160 mark during this year's first half.
"The year 2023 was a paradigm shift for the Kenyan economy, global monetary policy tightening, lean forex reserves, a bloated debt burden, currency depreciation and high inflation negatively impacted the country," the report reads.
Based on the above actors, the report thus predicts that currency depreciation will persist.
It says this is amid the shift towards more orthodox monetary policy measures alongside CBK’s surprise rate hike which rose by 200 basis points in to 12.5 per cent in December.
"This is expected to slow the shilling’s depreciation ahead of the Eurobond repayment in June this year."
Between 2013 and 2023, the report highlights a significant increase in the country's debt obligation, as the total public debt grew almost five times to $69 billion (Sh11.1 trillion), increasing debt-to-GDP ratio to 64 per cent from 40.
Latest data by CBK quoted the external debt at Sh5.67 trillion as of September 2023, rising by about 36 per cent since December 2021.
This has majorly been on the back of the weak shilling, since majority of the foreign debt is dollar denominated.
According to market analyst Mihr Thakar, if the trend persists, the shilling will then have little hopes of regaining its lost value.
Based on the shilling’s weakening trend in the past one year to September, it was projected that Kenya's external debt could rise by close to Sh1 trillion in a year to December 2023.
The pressure is consequently eating into the countries Forex reserves that are meant to serve as the country's cushion in times of a crisis.
The usable foreign exchange reserves remained at $6,829 million (Sh1.1 trillion) (3.7 months of import cover) as at January 11, as per the regulator.
Notably, for the last five months, forex reserves have remained below the statutory requirement of maintaining at least 4.0 months of import cover, and this could be a worrying trend for the shilling's stability prospect.
Further pressure is expected on the country’s forex reserves as importers also seek the much-needed dollar to pay for imports.
Speaking to The Star, Mihr Thakar, concurred Stears' shilling outlook saying the shilling over the last two years, has dwindled against the dollar, and the risks of further weakening are inevitable with the exacerbating debt obligation pressure.
He said the weakening of the local currency has negatively impacted the economy so far.
“Goods imports declined by about 14.9 per cent in the 12 months to October 2023, compared to 14.7 per cent growth in a similar period in 2022,” Mihr said.
“As long as increasing tourism, diaspora remittances and Foreign Direct Investments (FDIs) do not take the reins amidst an increasing debt servicing burden, the shilling will continue weakening.”
He however noted that an export boom would be a boon, lauding the government’s plan to pursue a policy of export incentives and export of labour to increase foreign currency inflows.
Eurobond issuances can also help provide short-term dollars for cushioning the shilling, but only compound the problem in the long-term, he added in part.
Mihr is however doubtful on the presumed good doing of CBK’s continued rate hikes to try cushion the shilling, as the latest Monetary Policy Committee meeting raised the base lending rate to a historic 12.5 per cent from 10.5 per cent.
He said the state is doing this with an assumption that the economy will be supported by agriculture, in order to stem the supply of the shilling.
On the contrary, he said Stanbic’s Purchasing Manager’s Index (PMI) index has been negative for nine out of the previous 10 months, suggesting that the economy is already reeling from the global and domestic tightening.