2023-10-26 19:13:43
The Kenyan currency, the shilling, which trades at a historically low rate, has been overvalued for several years, said the governor of the central bank of this East African country.
The Kenyan currency hit a new historic low on Monday, at 150 shillings to the dollar, down 24% over one year. In October 2018, one dollar was worth 100 shillings. “I think for several years now we have had an overvalued exchange rate,” Central Bank of Kenya Governor Kamau Thugge told a parliamentary committee on Tuesday. The official said that regarding five years ago, the International Monetary Fund and the World Bank considered the shilling overvalued by 20% to 25%.
A heavier debt
“We tried to artificially maintain a fairly strong exchange rate, but at the cost of a loss of international (currency) reserves,” said the governor of the Kenyan central bank, who took office in June. According to the head of the Central Bank of Kenya, the country’s foreign exchange reserves can cover less than four months of imports. “It is still sufficient to deal with possible emergencies,” he assured. This historically low exchange rate results in particular from the strengthening of the American currency, due among other things to the high yields on American Treasury bills. This depreciation makes imports more expensive and increases the weight of Kenyan debt, which amounted to more than 10,100 billion shillings (64.4 billion euros) at the end of June, according to Treasury figures, or around two thirds. of gross domestic product.
Purchasing power at half mast, growth slowing
Elected in August 2022, President William Ruto introduced a series of tax increases and new taxes intended to increase state revenue and restore room for maneuver to the country. But these measures weigh heavily on purchasing power, causing incomprehension and discontent among the population even though he had promised during the presidential campaign to alleviate the financial difficulties of the poorest Kenyans. The locomotive of East Africa, the Kenyan economy was seriously shaken by the covid-19 pandemic, then the shock wave of the war in Ukraine and a historic drought in the Horn of Africa. Economic growth slowed to 4.8% last year, compared to 7.6% in 2021, and growth forecasts for 2023 look lower than 2022.
Sami Nemli with agencies / Les Inspirations ECO
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