Let shilling float and restore OTS

In Summary

• It is now almost impossible to buy dollars from commercial banks at the official CBK rates

• The government has suspended the Open Tender system which may result in fuel shortages

A shortage of dollars and a looming shortage of fuel are warning signs in the economy. Both problems are linked to excessive state intervention and increasing distrust of the private sector.

The shortage of dollars is the result of Central Bank intervention over the last three years which has kept the price of the Kenya shilling artificially low. A parallel market has emerged where sellers of US dollars prefer to bypass banks in favour of forex bureaus and private buyers who give higher rates. 

Now the state is trying to keep the price of fuel down by making government-to-government bulk purchases by single tender for six months at a time.

The state has suspended the Open Tender System where oil marketers competed monthly to supply Kenya. A transparent system has been replaced by an opaque system. It will be a miracle if fuel prices (relative to the world price) come down.

It is commendable that government wants to help the masses by reducing fuel costs, forex rates and therefore import prices. But the state is less efficient in business than the private sector. It should let the shilling float and restore the OTS.

Quote of the day: "You must study the endgame before everything else."

José Raúl Capablanca
The Cuban chess genius died on March 8, 1942

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