Shilling fall evokes memories of Zimbabwe inflation

By John Njiraini

The freefall of the shilling that hit new lows of Sh107 this week has started evoking memories of Zimbabwe, a country that in 2009 was forced to ditch its currency and replace it with the US dollar and the South African Rand.

Although the fundamentals and dynamics of the Zimbabwe situation differ greatly with Kenya, similarities in the fact that the Zim dollar was five years ago the worst performing currency, the scenario currently facing the Kenyan shilling, is raising fears that Kenya could go the same route unless the depreciation is arrested.

The fact that Central Bank of Kenya (CBK) is fast running out of options to halt the freefall of the shilling brings into memory how Zimbabwe’s economy nearly ground to a halt with unprecedented fall of the Zim dollar and hyperinflation.

With the situation expected to worsen in the coming months, with analysts projecting that inflation could hit 20 per cent before end year, the tremor that befell Zimbabwe is fast reverberating in Kenya albeit in low magnitude.

In Zimbabwe, a government instigated move to seize white owned farms through a land reform programme ignited the worst economic crisis in the once stable and prosperous nation.

Africa breadbasket

At one point, between 2005 and 2007, food production in the once breadbasket of Africa plummeted by 45 per cent, manufacturing output declined by 29 per cent while unemployment surged to 80 per cent.

In the wake of this chaos, inflation started to soaring at unprecedented rates hitting an incredible 231 million per cent in October 2008.

To keep pace with the hyperinflation, the Zimbabwe Central Bank kept printing money as the Zim dollar depreciated in value with the blink of an eye. At one point, particularly at the height of the economic chaos, Zimbabwe had bank notes of 10, 20, 50 and 100 trillion denominations.

During this period, the cost of a loaf of bread in Zimbabwe was going for a staggering Zim dollar 10 million.

In August 2009, the Zimbabwean government decided it had had enough and replaced the Zim dollar with the US dollar and South Africa Rand, something that has slowly stabilised the economy.

While it might seem farfetched to imagine Kenya can travel this route, the inability by CBK and the Government to contain the freefall coupled to rising prices of basic commodities lis raising fears that Kenyans have not seen the worst of the depreciating shilling.