The Kenya Shilling is ranked the 6th worst-performing African currency this year, slumping by more than 15% against the US Dollar. At the close of forex trading yesterday, the Kenya Shilling depreciated against the dollar to trade at KSh 145.15 from KSh 144.99 in the previous session. On a year-to-date basis, the shilling has depreciated by 17.65% to the dollar, compared to the 9.04% depreciation for the year ended December 2022.
This is as Kenya takes painful steps to implement the Finance Bill 2023, which has introduced new taxes such as the Housing Levy as well as the Digital Tax. Kenya has also introduced new income tax bands, targeting the mostly higher salary earners.
Kenya Shilling depreciation in HY 2023
In the first six months of this year, the Kenya Shilling depreciated by 13.94% against the US Dollar to close at KSh 140.52 compared to a 4.16% decline in HY 2022 when the exchange rate stood at KSh 117.83 against the greenback.
The decline in the shilling is attributed to the strengthening of the US Dollar against emerging market currencies, the rise in global commodity prices leading to higher demand for dollars and the reduction of dollar receipts from agricultural produce.
Foreign exchange reserves have been wobbling near the CBK’s statutory requirement of at least 4 months of import cover, on the back of increased dollar outflows in debt servicing.
Analysts at Nairobi based brokerage AIB-AXYS Africa, anticipate that the Kenya Shilling will continue the losing streak against the US Dollar having already depreciated higher than the 9.04% recorded in 2022.
The dollar has continued to strengthen against frontier currencies coupled with foreign denominated debt repayment will further weaken the forex reserves.
Additionally, dividend repatriation in Q3’23 in the equities market will further increase demand for the dollar. The inflow of dollar investments through FDI’s, NSE Market and other capital inflows will be a key source of dollar supply helping KES sustain resistance.
According to data from Bloomberg and World Currency Monitor, Nigeria’s naira is the worst performing currency in Africa in 2023, depreciating by more than 40% year to date against the US$ as the country struggles to patch up its broken foreign exchange regime and stop the fuel subsidy programme.
The naira is followed by the Angola Kwanza which has lost 39.5% against the US dollar YTD, Egyptian Pound (20.6%), Congolese Franc (18.9%) Liberian Dollar (18.6%), Kenya Shilling (15.7%), Sierra Leone’s Leone (13.8%), Ghana’s Cedi (11.9%), Rwanda Franc (11.6%) and the South African Rand (9.6%).