The Kenyan Shilling has plummeted to a one-month low against the US dollar, coinciding with intensified nationwide protests against President William Ruto’s government.
Economic and Political Turmoil
The ongoing protests reflect widespread dissatisfaction with President Ruto’s leadership, despite his recent decision to dissolve his entire cabinet and withdraw the contentious Finance Bill, 2024.
Data from the Central Bank of Kenya (CBK) shows that the shilling traded at 130.5 units to the US dollar.
The currency last reached the 130 level on June 9, just before the countrywide protests against the Finance Bill on June 18, 2024.
Impact on the Economy
The decline in the value of the shilling signals the economic challenges facing Kenya amid political instability.
The protests, sparked by opposition to the Finance Bill, have further strained the nation’s economic outlook, contributing to the shilling’s depreciation.
Public Sentiment
The Finance Bill, which was expected to generate Ksh.346 billion in revenue for the government, faced fierce opposition from the public.
Many Kenyans viewed the bill as punitive, leading to widespread demonstrations demanding its withdrawal.
In response, President Ruto rescinded the bill and announced significant government restructuring, including dissolving his cabinet.
Looking Ahead
As Kenya navigates political and economic uncertainty, the government’s actions and the public’s response will likely continue to impact the nation’s financial stability.
Also Read: Kenya Shilling Weakens Against Dollar as President Ruto Rescinds Finance Bill, 2024
On July 8, 2024, Moody’s Ratings (Moody’s) downgraded Kenya’s local and foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to Caa1 from B3 – implying a negative outlook.
The downgrade of Kenya’s rating reflects significantly diminished capacity to implement revenue-based fiscal consolidation that would improve debt affordability and place debt on a downward trend.
“We do not expect the government to be able to introduce significant revenue-raising measures in the foreseeable future.
As a result, we now expect the fiscal deficit to narrow more slowly, with Kenya’s debt affordability remaining weaker for longer,” said Moody’s.
The rating firm also affirmed that “larger financing needs stemming from a wider deficit increase liquidity risk against more uncertain external funding options.”
Kenya’s local currency (LC) ceiling was lowered to B1 from Ba3, maintaining a three- notch difference with the sovereign rating, which reflects relatively weak institutions and policy predictability and moderate political risk set against a relatively small footprint of the government in the economy and limited external imbalances.
The foreign currency (FC) ceiling on the other hand, was lowered to B2 from B1, one-notch below the LC ceiling, which reflects relatively low external debt and a moderately open capital account, which reduce, although do not remove entirely, the incentives or need to impose transfer and convertibility restrictions in scenarios of intensifying financial stress.
The negative outlook captured downside risks primarily related to liquidity risk and elevated refinancing needs against limited external financing options and reliance on expensive domestic financing of the fiscal deficit.
The performance of the Kenyan Shilling in the coming weeks will be closely watched as an indicator of the country’s economic health and investor confidence.
