The Kenyan Shilling on Wednesday recorded a drop in value for the fifth consecutive day despite recording resurgent performance against the US dollar in the past month.
According to the Central Bank of Kenya, the Shilling continued to rally against the Dollar, as the currency surged to Ksh127 in the previous week.
The value has, however, seen a drastic drop with the currency oscillating between Ksh130 and Ksh132 this week showing a decline in growth in the foreign exchange market.
As of Wednesday, the Shilling was trading at 132 units against one green buck.
A look at Factors That Caused the Kenya Shilling to Gain/Lose Against the Dollar
A Review of Significant Events From 2020 to 2024
(Scroll to interact with the graphics)
This has thus caused uncertainty among investors over the volatility of the Shilling culminating in dollar outflows by businessmen seeking to invest in other countries exhibiting more stability.
What Caused the Dollar to Fluctuate?
Speaking to Kenyans.co.ke, Governance expert Ben Mulwa explained that the strengthening of the Shilling in the past month was attributed to the Eurobond buyback, which he pointed out was not sustainable over the long haul.
"There was the issue of the regularisation of the Eurobond. It played a major factor in restoring investor confidence.
"You realise it's not sustainable because what ultimately would stabilise the Kenyan Shilling and make it possible for it to be predictable is to stabilise our exports," he stated.
"Unfortunately, our exports have been on the decline to an extremely large extent and as long as we remain a net import economy and continue to import products that we were not importing before, then we have zero control over the Shilling."
He added that Kenya should not be importing basic commodities that the country has the potential to make. For net importers, the government is forced to borrow to fund the imports which are denominated in Dollars and hence the increase in sovereign debt.
This hence causes a ripple effect on the purchasing power of the commodities and subsequently leads to a rise in the inflation rate. Importers will thus purchase the commodities in dollars and place further strain on the Kenyan currency.
"For instance, a basic commodity such as onions; for the past year, the prices of onions have been on the rise and for some strange reasons we are unable to produce onions to meet our consumption," he explained.
"This is a product that was not in the computation of our dollar reserves. Those who have access to the product can control the prices and by effect, have a say on the value the Shilling is placed to the dollar. The ripple effect cuts across so many commodities that we have previously not been importing."
William Irungu, a senior research associate and economic expert shared Mulwa's sentiments and noted that the Shilling will depreciate further and settle at Ksh160 should the government not find a lasting solution.
"Soon, we will see the Shilling on a free fall unless the government intervenes hence investing in the country is a risky affair," Irungu remarked.
Mulwa noted that the fake fertiliser scandal will subject the agricultural sector to further crisis with the farmers unable to capitalise on the rainfall season experienced across the country.
"The farmers were expecting fertiliser as it is the planting season and if they cannot access the government subsidy, they will acquire it from the private sector, the farmers will have to get the product and may end up buying it at higher prices."
"All indicators are we're going to see the downward fall of the Shilling in the coming weeks."
