How Covid-19 continues to weaken the Kenyan Shilling
The world markets have been changing rapidly due to a number of reasons thus affecting net importing countries like Kenya. The shift from fossil fuels and the pandemic have deteriorated an economy that was already on its knees. The Kenyan shilling has continued plummeting in the recent days against the US dollar. Although the effects came wildly after last year’s global pandemic, the fears of the pandemic rattled so many economies and the Kenyan economy was sliced deep throat in reference to the recent just read budget of FY’2021/2022. Despite recovery measures being laid down by the treasury, fears are that the dollar might shoot even higher.
On 20 March, the shilling closed the day at 106.0 KES per USD, which represented a 4.4% depreciation over the same day of the previous month and marked the lowest value since September 2015. As of that date, the shilling was down 4.4% year-to-date and 4.7% compared to the same day last year.
Concerns over the potential economic fallout from the spread of the Coronavirus pandemic weighed heavily on market sentiment in recent weeks, increasing demand for safe-haven assets and leading to a sharp weakening of the shilling. Moreover, the lockdowns in Europe—the country’s largest export market, particularly for flowers—and widespread travel restrictions are seen curbing hard currency earnings, while remittance inflows are slowing.
The treasury CS, Ukur Yatani while presenting a Ksh 3.64 trillion budget to the parliament early this month, promised Kenyans that the proceeds would necessitate the speedy economic recovery. However many Kenyans have had to inquire on the spending rate in the country that’s not even affected by inflation yet the dollar is still rising exponentially.
On the monetary policy front, the Central Bank announced on 16 March measures to offer relief to distressed borrowers by allowing commercial banks to extend loans for up to a year to those who get into difficulties due to the coronavirus crisis. Furthermore, small- and medium-sized firms affected by the pandemic will also be able to restructure their bank loans at no cost, while charges and limits for mobile transfers have been removed in order to promote mobile money transactions, reduce the need for cash transactions and thereby prevent the spread of the virus.
According to statistics by CrystalPerk Mombasa Magazine the USD has been rising steadily in exchange rate. The depreciation rate of the Kenyan shilling is expected to hit 108 in exchange to the USD. In 2015, 2016, 2017, 2018, 2019, 2020 the exchange rate of the KES by the USD was as 102.3, 102.5, 103.2, 101.9, 101.4 and 105.2 respectively.
As of June 20th the USD had hit 107.80 KES. Experts and economists project this as the riskiest era of the Kenyan shilling in the stock exchange market. The projections are to hit 108 by July 2021. The pandemic’s economic impacts have been significant in Kenya, with marked effects on remittances, fuel prices, access to affordable food, and the ways in which ordinary Kenyans access money.
As a consequence of the increase in remittances, the exchange rate of the US dollar and British pound against the Kenyan shilling depreciated by 10%. At the start of 2020, the Kenyan shilling was exchanging at Kshs 101.4 against the US dollar but depreciated to close the year at Kshs 111.68.
The weakening of the shilling has led to the largest jump in fuel prices (11%) in Kenya in more than 13 years. Fuel has been one of the major imports in the country and it is estimated that 70% of the urban poor rely on kerosene for lighting and as a source of energy. In addition, transportation costs shot up due to increase in pump prices and the government’s directive to limit capacity in public transportation to 60% in order to enforce social distancing. As a result, people who rely on public transportation in their commute to work and carry goods to their businesses, experienced a further squeeze on their wallets — and the second half of 2021 doesn’t look any better.
Mobile money has been rightfully lauded for providing financial inclusion, and the government’s cash relief programme is disbursed to mobile wallets. In March 2020, the Central Bank of Kenya (CBK) took measures to facilitate increased use of mobile money transactions, including charging no fees for transactions below Kshs 1,000 and lifting the daily limit of mobile money transactions from Kshs 150,000 to Kshs 300,000.
These measures seem to have been mostly utilized by middle- to high-income earners in Kenya The volume of transactions undertaken on mobile money increased marginally after the CBK intervention while the value of transactions continued its trend of exponential growth.
The current state of economy in Kenya is still fragile despite the beaming hope that Kenyans still wear on their faces daily as they attend to their work – the Kenyan shilling is depreciating so fast. Unless the local market is absorbed and integrated in the daily activities of this economy, the equally shattered external market, will show little hope for its already weak stability. It is on this platform that campaigns like #BuyLocalSupportLocal #BuyLocalFirst and #BuyMombasaSupportMombasa are gaining ground with the larger MSME market. Before large funds are expatriated in the name of investing in trade businesses outside the country, locals are choosing to use local alternatives which previously have shied away from the limelight due to competition or lack of marketing budgets. While supporting local economies is important, it doesn’t mean that foreign purchases are denied, it only means that the local economy should benefit first before investing elsewhere. Major economies such as China and USA have tapped the local market first and that has been their first line of defence in protecting their currency.