The dollar shortage and the depreciating value of the Kenya shilling against the US dollar are weighing heavily on the country's economy.
Already, prices of a number of commodities are steadily rising, with experts warning that the situation could worsen in the coming days.
Should the situation persist, Kenyans who are already grappling with inflation, will have to bear the brunt and dig deeper into their pockets, for various essential commodities.
Kenyans.co.ke, sought the opinion of economist Churchill Ogutu of the IC Group on the short and long-term effects of the dollar shortage and commodities whose prices are likely to jump.
Kenya is a net importer and the dollar shortage affects the economy directly. Here are 5 products whose prices are likely to go up:
- Fuel
According to official data, Kenya imported fuel and lubricants worth Ksh606 billion in 2022.
Currently, a litre of petrol retails at Ksh177.3 for super petrol, Ksh162 for diesel, and Ksh 145.94 for kerosene - based on the Energy and Petroleum Regulatory Authority (EPRA) review of February 14.
So sensitive and crucial are pump prices that any upward reward review causes a ripple effect on the economy.
"An increase in fuel prices touches every other thing," Ogutu noted.
- Loans
Kenya is set to pay more for loans taken in the past. This is because the government borrowed the loans in US dollars when the exchange rate was low.
According to the National Assembly's Public Debt Committee, Kenya's debt stood at Ksh9.15 trillion in December 2022.
"It is worth noting that, as a result of these exchange rate fluctuations, this country paid Ksh5.4 billion in 2021/22. For half of this year, we have paid Ksh2.05 billion as a result of changes in exchange rates," stated Abdi Shurie, the Chairperson of the Public Debt Committee during a debate on Wednesday, February 23.
In fact, one of the primary reasons for the dollar shortage is external debt payments. Kenya has borrowed heavily from China and multi-lateral organisations such as the World Bank Group and the International Monetary Fund (IMF). As of December 2022, Kenya owed the World Bank Group Ksh1.4 trillion.
- Raw materials
Many Kenyan manufacturers import raw materials for their products. More times than not, dollars are used to pay for imports.
This means Kenyans will pay more shillings to get dollars in order to pay for similar imports they made last year.
Kenya's most valuable imports are petroleum oils, palm oil, medication mixes, wheat, and vehicles and machinery.
For instance, fuel imports account for nearly Ksh450 billion while vehicles account for nearly Ksh180 billion. These products make up nearly 30% of Kenya's total spending on imported goods.
- Food
Prices of a number of foodstuffs are set to go up. "A rise in fuel prices will also impact food prices because of the transport costs," the economist added.
Even as the government imports duty-free maize, the maize is paid for in dollars. This means the imported maize will reach the Kenyan shores at high prices.
Closely connected to food is the price of cooking oil. Kenya imports the bulk of its crude palm oil from Indonesia and Malaysia in US dollars. Edible oils are the second largest import item after petroleum. The country spends about Ksh60 billion a year on the product.
- Electricity
The dollar shortage has affected the price of electricity for households and industries alike. On February 28, Kenya Power sought regulatory approval to have some of their clients pay for their electricity in dollars.
However, the regulator declined the request that was meant to stop the parastatal from foreign exchange losses. This signaled the market that one of the largest parastatals was feeling the pinch due to the dollar shortage.
EPRA has already raised the fuel cost charge to Ksh8.3 per kilowatt-hour kWh from Ksh6.59 in February.
