Kenyan Shilling
The Kenya Shilling depreciated marginally last week losing 0.2 percent against the dollar to close the week at 103.9 shillings from 103.8 shillings recorded the previous week on account of heightened dollar demand from oil importers in anticipation that the shilling is expected to weaken further.
Economic analysts such as Cytonn Investments expect the shilling to come under pressure following the global strengthening of the dollar and the increasing world oil prices. On a year to date basis, the shilling has depreciated against the dollar, losing 1.4 percent.
In recent months, the forex reserves have reduced to USD 6.9 billion (equivalent to 4.55 months of import cover), from the USD 7.8 billion peak in October 2016 (equivalent to 5.20 months of import cover). The reserves level declined during the week to 4.55 months of import cover, from 4.62 months of import cover the previous week indicating that the Central Bank used reserves worth USD 114.0 million to support the shilling last week. If the reserve levels drop too low, the government can access the IMF credit facility, comprised of a USD 989.8 million 24-month Stand-By Agreement (SBA) and USD 494.9 million 24-month Stand-By Credit Facility (SCF), bringing the combined facility to USD 1.5 billion.
Energy Regulatory Commission
The Energy Regulatory Commission (ERC) has maintained the fuel levy in the month of January at 2.85 shillings per Kilowatt hour offering relief to electricity consumers given that electricity prices were expected to rise on account of the ongoing drought in various parts of the country.
This was set to diminish the use of the cheaper hydroelectric power in favor of thermal means, but the move could prove to be the cushion needed to restrain any huge spike in electricity prices. This comes after a stalled energy bill that is before the Senate for consideration, which will allow the ERC to set up a national dispatch unit, that will aim to promote cheaper distribution of electricity to consumers.
The government is also considering the option of converting a portion of the country’s coal deposits, where 400.0 million tonnes were discovered in Kitui into oil in a bid to protect the economy from volatile global oil prices. However, the high initial costs of setting up a processing plant could prove to be a real challenge. Apart from the challenges brought about by the non-relenting drought, it is likely that the expected rise in global oil prices will continue to push energy prices upwards and hence spur cost-push inflation.
Budget Financing This Fiscal Year
According to the Treasury Secretary Principal, Kamau Thugge, the Government has initiated plans to raise USD 1.1 billion through syndicated loans as part of the budget financing for this fiscal year.
The proceeds shall comprise of:
- USD 250.0 million secured from PTA Bank, the financial arm of COMESA
- USD 800.0 million expected to come in from international banks yet to be disclosed.
The proceeds are also expected to assist the government in boosting its foreign reserves, and in the process, bring stability to the shilling. Further to this, the Indian Government has announced an agreement, following bilateral talks, that will see Kenya receive credit worth USD 100.0 mn, whose proceeds shall be channeled towards the agriculture sector, targeting mechanization. However, given the two sets of the dollar denominated credit, the country’s overall debt continues to grow following this recent development.