During the month of May, the Kenya Shilling depreciated by 0.8 percent against the US Dollar, to close the month at 116.7 shillings, from 115.8 shillings recorded at the end of April 2022.
The dismal performance of the shilling was driven by the increased dollar demand from oil and merchandise importers on the back of increased global oil prices against a slower recovery in exports and in the tourism sector.
During the week, the Kenyan shilling depreciated marginally by 0.1 percent against the US dollar to close the week at 116.8, from 116.7 shillings recorded the previous week.
The performance during the week was partly attributable to increased dollar demand from the oil and energy sectors as well as the manufacturing sectors.
NOTE: Kenya Association of Manufacturers says that the shilling is doing worse than what is being quoted. Says the shilling is currently exchanging 120 shillings to the dollar.
Key to note, this is the lowest the Kenyan shilling has ever depreciated against the dollar. On a year-to-date basis, the shilling has depreciated by 3.3 percent against the dollar, in comparison to the 3.6 percent depreciation recorded in 2021.
Pressure on the shilling will continue coming from the rising global crude oil prices on the back of supply constraints and geopolitical pressures at a time when demand is picking up with the easing of COVID-19 restrictions and as economies reopen.
At the same time. the increased demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
An ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit, estimated to come in at 5.1 percent of GDP in the 12 months to April 2022 compared to the 4.8% for a similar period in 2021.
The aggressively growing government debt, with Kenya’s public debt, has increased at a 10-year CAGR of 18.6 percent to 8.2 trillion shillings in December 2021, from 1.5 trillion shillings in December 2011 thus putting pressure on forex reserves to service some of the public debt.
It is worth noting that the average GDP growth over the same period has been 3.9 percent, an indicator that the increase in debt is not translating into GDP growth.
The shilling is however expected to be supported by the High Forex reserves currently at USD 8.2 bn (equivalent to 4.9-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.
The improving diaspora remittances evidenced by an 18.6% y/y increase to USD 355.0 mn as of April 2022, from USD 299.3 mn recorded over the same period in 2021which has continued to cushion the shilling against further depreciation.
Related Content: Shilling Down 0.06%, Equity Turnover Up 5%