Tough times: Kenya piles Kshs 2.5 billion debt in a day

A Kshs 200 note. Kenya is headed for tough times ahead after the country’s currency lost its value against the US dollar by a 0.1 per cent depreciation on Thursday. [Photo/CBK]




Even without signing any new loan deals, the country has to fork out the billions to repay its debtors, adding to the pinch the citizens already have bearing the burden of unfettered borrowing

On Thursday, Kenya’s foreign debt grew by Sh2.5 billion after the Kenya shilling crossed the 103 mark, a 0.1 per cent depreciation. This means that even without signing any new loan deals, the country has to fork out the billions to repay its debtors, adding to the pinch the citizens already have bearing the burden of unfettered borrowing.

The Kenya Shilling has lost ground in six straight days of trading hitting Sh104.08 against the US dollar on Thursday morning before the Central Bank of Kenya (CBK) intervened by supplying more dollars to stabilise the local currency. After the intervention, the shilling closed the day at Sh103.17. With oil prices pushing up imports costs, the pressure will be piling on the CBK reserves and local lenders with traders requiring more shillings to buy dollars for imports.

An analyst quoted by the Standard said there is some panic in the Kenyan market since the withdrawal of the International Monetary Fund (IMF) currency facility but he expressed optimism that this happens around this time of the year.“I have a different view when it comes to the shilling. The shilling always comes under pressure at this time of the year on dividends, import demands and Eurobond coupons,” the analyst said.




With this slide, basic commodities prices are likely to shoot further hitting Kenyans hard.

A report dubbed Africa Monitor- East and Central Africa for December by global ratings firm Fitch Solutions on Thursday said, “The Kenyan shilling will see greater downward pressure in the quarters ahead given challenges to the growth outlook and higher inflation.”

Indicting the introduction of VAT on fuel products, the report noted that the move will negatively impact business operations. Hiked operational costs will lead to increased prices for products and services to consumers. By end of 2018, the report forecasted that the shilling will weaken to Sh103.5 against the dollar.

Kenya is a net importer of most basic commodities including foodstuff and petroleum products with the country’s trade deficit for the January to August period standing at Sh777.87 billion.

According to the IMF, the shilling’s strength may be compromising Kenya’s export market on an import to export ratio of around three to one. In October, the IMF said that the shilling may be overvalued by up to 17.5 per cent. It added that the shilling risked being classified as “managed” rather than operating on the forces of demand and supply.




In a report released last month and quoted by Bloomberg, IMF said that following a review on Kenya’s economic health, “Reflecting limited movement of the shilling relative to the US dollar, MCM’s (Monetary and Capital Markets Department) 2018 report on exchange rate arrangement to be published in February 2018 will reclassify Kenya’s Shilling from floating to other managed arrangement,” IMF said.

This means that when the report was released in October, the shilling’s actual value would have been Sh119.62 instead of the average Sh101.8. Kenya’s total public debt is estimated to peak at 63.2 per cent of gross domestic product this year. According to the Washington-based lender, the debt will gradually decline over the medium term.

“The higher level of debt, together with rising reliance on non concessional borrowing, have raised fiscal vulnerabilities and increased interest payments on public debt to nearly one-fifth of revenue, placing Kenya in the top quartile among its peers,” the IMF said.

The last time the Kenya Shilling hit this low against the dollar was on January 17 this year. At the time, the selling price was Sh103.14 while the buying price stood at Sh102.94. And the shilling’s slide comes at a time when the IMF’s Christine Lagarde has asked Central Banks around the world to consider issuing digital currencies. Lagarde says that using cryptocurrency will offer immediate, cheap, safe and potentially semi-anonymous transactions.

Speaking at the Singapore Fintech Festival after the release of an IMF paper “Winds of Change: The Case for New Digital Currency”, she added that Central banks would have a sure footing in payments.

Lagarde hailed cryptocurrencies saying they would offer a platform for innovation and a more level playing field for competition.

Source: The Exchange Africa