During the week, the Kenyan shilling depreciated by 0.2 percent against the US dollar to close the week at 120.3, from 120.1 shillings recorded the previous week, partly attributable to increased dollar demand from the oil and energy sectors against a slower supply of hard currency.
On a year-to-date basis, the shilling has depreciated by 6.3 percent against the dollar, higher than the 3.6 percent depreciation recorded in 2021. Analysts say it will continue losing ground.
Pressure on the shilling will come from high global crude oil prices on the back of persistent supply chain bottlenecks coupled with high demand as most economies gradually recover.
An ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit estimated at 5.1 percent of GDP in the 12 months to July 2022 compared to the 5.2 percent within a similar period in 2021 will hurt the shilling.
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The aggressively growing government debt, with Kenya’s public debt, has increased at a 10-year CAGR of 18.2 percent to 8.6 trillion in May 2022, from 1.6 trillion shillings in May 2012 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, indicating that the increase in debt is not translating into GDP growth.
The shilling is however expected to be supported by Sufficient Forex reserves are currently at USD 7.3 bn (equivalent to 4.2-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover.
Sufficient diaspora remittances are evidenced by a 6.6 percent increase to USD 3,995.0 mn cumulative remittances as of July 2022, compared to USD 3,442.0 mn recorded over the same period in 2021, which has continued to cushion the shilling against a faster depreciation.
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