The Kenyan shilling on Monday, January 17 fell to Ksh113.61 against the dollar, its weakest performance on record.
The shilling has been hitting new record lows on a near-daily basis since early November 2021, largely weighed down by a strengthening greenback. With the Shilling continuing the downward trend in 2022, the decline raises concerns on foreign debt servicing among other facets of the economy.
Nearly half of Kenya’s external debt is denominated in foreign currencies. Debt repayments suspended by G2O and China due to the pandemic in the last fiscal year have resumed.
The situation is therefore set to impact public finances, with analysts from Focus Economics expecting foreign debt to end 2022 and 2023 at 42.5% and 43.7% of GDP, respectively.
Analysts from the London-based Economics Intelligence Unit (EIU) had in 2021 forecasted that the shilling would fall further in 2022 and end the year at Ksh116.7 to the Dollar. They cited expected uncertainty around the elections slated for August 2022.
“The depreciating trend will continue in 2022, amplified by election-related uncertainty, which typically saps confidence, taking the shilling to KES 116.7 per USD by year-end.”
“We expect the pace of decline to moderate over the remainder of the forecast period, helped in part by monetary tightening, leading to an average exchange rate of KES 126.5 per USD in 2026. The rate of nominal shilling depreciation will, nonetheless, be outpaced by inflation,” they stated.
Inflation in the United States in 2021 hit a 30-year high in November raising expectations of a rate hike. Coupled with Jerome Powell’s reappointment as chair of the Federal Reserve, the Shilling is among emerging market currencies on a downward trend.
Pressure on the shilling has been further exerted by inflation and falling foreign reserves.