More demand for the dollar to blame for a weakening shilling- Kamau Thugge

CBK Governor Dr Kamau Thugge before the Finance Committee at the Continental House, Nairobi. October 24th, 2023. [Elvis Ogina, Standard]

A steady demand for the U.S dollar has contributed to the continued devaluation of the Kenyan shilling.

According to Central Bank of Kenya Governor Kamau Thugge, the supply of the dollar has exceeded the demand forcing the shilling to trade at Sh150 against the U.S dollar.

Thugge who appeared before the Parliamentary Finance and National Planning Committee on Tuesday, October 24, said that there is need for structural reforms to contain supply and demand on the dollar.

"As of Monday, October23, 2023, the shilling was trading at 150 against the dollar making an excess demand for dollars. Between June and September this year, there was a slowdown in depreciation because of the increased supply," Thugge told the Kimani Kuria-led committee.

At the same time, the CBK Governor has called on the government to invest indirect foreign investment that will in turn attract tourism and hence help the steady flow of foreign currency. He insisted the need for the government to reduce imports into the country from 13.2 percent to 11.4 percent and instead focus on increasing exports.

Thugge says the situation has been made worse by the decline in international reserves caused by the overvaluation of the exchange rate between the shilling and the dollar.

"There is a need to invest in Medical Tourism regionally to increase the flow of reserves and foreign reserves. Right now, Kenya is attracting 1.7 percent of the Gross Domestic Product (GDP) from foreign investments," Thugge explained.

According to CBK records, between 2022 and 2023, the government had Sh1.3b in returns.

In the Financial Year 2022-2023, Kenya had Sh1.3 billion in returns, with neighboring country Tanzania making double in terms of travel receipts.

The CBK boss is expected to meet the International Monetary Fund (IMF) end of October to discuss further financial reforms and debt financing.