Kenya's Shilling Sinks to New Lows Despite $900 Million Funding Boost

Kenya’s currency has been one of the worst-performing currencies in Africa this year, despite receiving nearly $900 million in new funding pledges from the International Monetary Fund (IMF) and the World Bank ahead of a Eurobond repayment deadline in June.

According to Bloomberg, analysts are forecasting further weakness for the shilling, which has depreciated by 48.87% against the US dollar since January 2020.

The report cites the rising cost of imports, especially oil and food, as a major factor that is increasing the demand for dollars in the East Africa’s major economy.

The shilling is currently trading at 163.0 units against the dollar, but some analysts see it falling to as low as 210 per dollar by the end of the year.

This would put more pressure on the country’s inflation, which rose to 7.6% in December, above the central bank’s target range of 2.5% to 7.5%.

The new funding pledges from the IMF and the World Bank are meant to support Kenya’s economic recovery from the Covid-19 pandemic and ease its debt burden.

The IMF approved a $2.34 billion loan for Kenya in April, of which $307.5 million was disbursed immediately. The World Bank also announced a $750 million budget support loan for Kenya in May, of which $587.5 million was released immediately.

However, these funds may not be enough to prevent a default on Kenya’s Eurobond, which matures in June and requires a $774 million payment.

Kenya’s public debt has risen to 69% of its gross domestic product (GDP) in 2020, up from 50% in 2015.

Kenya is not the only African country facing currency woes.

According to Hanke’s Currency Watchlist, a group of currencies that have depreciated by at least 20% against the dollar since January 2020, the Zimbabwean dollar is the worst-performing currency in Africa, followed by the Sudanese pound and the South Sudanese pound.

The Ghanaian cedi, the Tanzanian shilling, and the Ugandan shilling are also among the 15 weakest currencies in Africa.