The Kenyan shilling has recorded a Year-to-date depreciation of 1.8 percent against the US Dollar due to continued pressure against debt accumulation.
According to data from the Central Bank of Kenya (CBK), the shilling started off the week at 125.6 units against the US Dollar.
The aggressive public debt accumulation, especially external debt at a 10-year Compound Annual Growth Rate (CAGR) of 19.0% to Ksh.4.8 trillion in December 2022, from Ksh.800 billion in the same period in 2012 has continued to exert pressure on Shilling, due to the increased servicing costs, considering that 69.3% of the external debt stock is in US Dollars.
Currency depreciation coupled with uncertainties such as elevated inflationary pressures on the Kenyan economy has seen government securities yields increase as investors attach higher premiums to compensate for the additional risk.
This even as Fitch Ratings in December last year downgraded Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ with a Stable Outlook.
The downgrade was attributable to Kenya’s persistent fiscal and external deficits, high public debt and high external financing costs which presently constrain access to international capital markets.
At the new year onset, the shilling retailed at Ksh.123.4 adding to a 9.0 percent depreciation in 2022 and further depreciation of 3.6% and 7.7% in 2021 and 2020 respectively.
This is the lowest the Kenyan shilling has gone against the dollar.
The continued depreciation has been mainly driven by an ever-present current account with Kenya being a net importer and the import bill being in US Dollars.
Being a net importer has also left Kenya susceptible to external shocks that have inflated the import bill and negatively affected the shilling such as the high global crude oil prices occasioned by persistent supply chain constraints worsened by the ongoing Russia-Ukraine conflict.
“The inflated import bill has led to increased dollar demand from importers against a lower supply of hard currency,” said Cytonn in its weekly report.