The Budget Options for 2024/2025 and Medium-Term Report have unveiled a concerning projection: the Kenyan shilling is anticipated to weaken against the dollar, despite its recent upturn.
According to the report, the shilling is forecasted to potentially lose up to 21 per cent in value by the end of 2024. Consequently, it is expected to trade at approximately Ksh171 against the dollar.
"Experts have posited that shilling is likely to continue losing value for the better part of the year and may shed as much as 21 per cent of its value by the close of the year," reads part of the report.
According to the report, this weakening will result from geopolitical tensions which will trigger capital flights in search of safer investments. Cases of terror attacks in the country may force foreigners out of the country.
Another reason identified is the ripple effect of the high US interest rates. On these interest rates, the Federal Reserve on February 27 revealed that the decline of the rates will be slow, shattering investors' hopes.
Additionally, another reason is the rising cost of imports which will see the demand for dollars increase. Some main goods imported include fuel, food (including edible oils), and other raw materials.
The weakening of the shilling is poised to negatively impact the pricing of essential commodities, including food and fuel. This will further burden Kenyans already grappling with the elevated cost of living.
"A weak shilling implies that these goods will be substantially costlier, and this cost will be passed on to the consumer, thereby increasing the cost of living and perpetuating the decline in household consumption," reads part of the report.
Notably, this increase in the cost of living will see more Kenyans limit their household consumption in 2024. The subdued consumer activity will also be attributed to the decline in incomes.
Kenyans will also be dealing with a higher tax burden in 2024 as the government introduces more taxes such as Social Health Insurance.
"Indeed, despite the cooling of inflationary pressures due to stabilized food and fuel costs, the knock-on effects from exchange rate depreciation
could substantially increase input costs and fuel costs, leading to higher production costs," reads part of the report.
Despite the decline, the government has assured Kenyans of putting in place measures to see to it that the shilling continues to gain against the dollar and other foreign currencies.
"I want to assure Kenyans that we have the resources. We have the money that is coming from the international institutions and the risk of the Eurobond will be eliminated and that should contribute to the strengthening of the shilling," Central Bank of Kenya Governor Kamau Thugge stated on February 7.
