Treasury Cabinet Secretary (CS) Njuguna Ndung’u on Saturday, January 20, absolved Gulf-based oil tycoons from the current depreciation of the Kenyan Shilling against the dollar.
In a statement, the CS stated that the government-to-government (G-to-G) oil deal between Kenya and three Middle Eastern countries was not to blame for the weak Shilling currently exchanging at 161 against the dollar.
CS Ndung’u remarked that the G-to-G instead should be hailed for ensuring that the country did not find itself in an economic crisis.
“The depreciation of the Kenya Shilling as witnessed in the recent past is as a result of market fundamentals and not driven by the G to G arrangement,” Ndungu explained.
Market fundamentals are arrived at by analysing the real fair market value of a stock or currency.
As such, the market fundamental (fair valuation) of an asset is the discounted present value of the stream of future cash flows attached to the asset.
Former President Uhuru Kenyatta’s administration has been accused by the current regime of artificially strengthening the Shilling instead of letting market forces determine its value.
Through propping, Uhuru’s government was accused of creating an artificial demand for Shilling by using foreign exchange reserves to buy the local currency.
According to Ndung’u, there was a looming economic shutdown in 2023 as the policies by the former administration created US dollar (USD) liquidity problems.
“The demand for USD had put a strain on the country's forex reserves threatening the security of supply of petroleum and other critical sectors such as food and agriculture that also heavily rely on imports,” he explained.
“The G to G arrangement came in to stabilize the macroeconomic environment by providing an extended credit period for petroleum imports - 180 days compared to the initial 30 days and this freed about 30 per cent of the country's forex to other sectors of the economy.”
With the Kenyan economic market stabilised and foreign exchange market pressures handled, Kenya will exit from the oil deal in December 2024.
The Kenyan Shilling was the third worst-performing currency in 2023 in Africa after the Nigerian Naira and Angolan Kwanza after it shed 20 per cent of its value.
CS Ndung’u reckons that this could have been worse if Kenya had not struck a deal to buy fuel on credit from Saudi Aramco, Abu Dhabi National Oil Corporation Global Trading (ADNOC), and Emirates' National Oil Company (NOC).
