Let the Kenya shilling float

In Summary

• Government has done a deal with Saudi Arabia and the UAE to import oil on credit for six months

• The dollar shortage is partly due to the rise in debt from  $12 billion to $72 billion over the last 10 years

President William Ruto said at the Nairobi Securities Exchange on Wednesday that the dollar shortage in Kenya will soon be over. Sadly he may be mistaken.

The only long-lasting solution is to let the Kenya shilling float and find its own level where supply balances demand.

The government has made a deal to buy oil on credit from Saudi Arabia and the UAE but after six months Kenya will have to start spending around 500 million dollars per month. This is only a temporary solution.

Ruto inherited $72 billion in debt from the previous government. Most of that has to be repaid in dollars so the private sector is competing with the public sector to buy dollars. This is causing the shilling to depreciate as demand exceeds supply.

Sadly, this dollar shortage will further increase the cost of living as the price of all imported commodities, including maize, cooking oil and fuel, will rise. Bringing in duty-free foodstuffs is likely to result only in windfall profits for the importers.

So let the shilling float and find its natural level. At least that will have the benefit of rewarding local producers and penalising those who import.

Quote of the day: "Some are born great, some achieve greatness, and some have greatness thrust upon them."

William Shakespeare
The English playwright died on March 23, 1616

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