CBK boss Thugge put in a corner over weakening shilling

Central Bank Governor Kamau Thugge responded to audit queries when he appeared before the National Assembly Public Accounts Committee at Parliament. [Boniface Okendo, Standard]

Central Bank of Kenya Governor Kamau Thugge has identified fiscal consolidation, early repayment of government debts and attracting foreign direct investments as the cure to the depreciating Kenyan Shilling.

The Governor revealed this after he was taken to task by MPs over the depreciation of the Shilling compared to other currencies in the region on Tuesday.

He had a hard time convincing legislators that President William Ruto's administration was doing enough to stem the further depreciation of the shilling.

This came, as it emerged that Kenya’s foreign debt had risen by more than Sh382 billion in the past four months of the 2023/24 financial year.

Public Debt and Privatization Committee Vice Chair Makali Mulu was concerned that that the Central Bank had partially abdicated its duty of advising the government on measures that needed to be implemented to strengthen the shilling and regularize the exchange rate.

Wajir East MP Aden Daud concurred with Mulu saying, “what would happen if we put in measures to strengthen the shilling in light of our debt burden? We also want to know whether it is a good policy to allow the market forces to dictate the value of the shilling in the short term.”

Thugge was however quick to emphasize the need for fiscal consolidation by continued mobilization of revenue and expenditure rationalization in order to stabilize the debt and move “decisively towards the target of 55 per cent in the Net Present Value (NPV) of debt to Gross Domestic Product (GDP) ratio.”

“We are currently engaged in fiscal consolidation. I have been engaging investors recently from Marrakesh and I am also in talks with the World Bank, IMF and other development partners for additional financing which will help us stabilize the shilling,” he said.

The committee further pressed the CBK Governor to explain the genesis of the decline of the Shilling given that Kenyans were already bearing the brunt of the weak Shilling by having to cough out more to afford basic commodities.

Thugge attributed the situation to high interest rates in the United States at the Federal Reserve Bank whose effects had spiraled to the Kenyan Shilling. His response, however, only elicited more questions from the discontented House committee.

“It can’t be that the Kenyan Shilling is the only one depreciating while the Ugandan and Tanzanian Shillings have appreciated in the same period. Does it mean our neighbors are not affected by the higher interest rates and the regional markets?” Posed Daud.

Thugge explained that Uganda and Tanzania had much lower exports-to-GDP ratio which meant that the two nations were able to inject more foreign exchange into their economies.

He also drew a direct correlation between a reduction in tourism numbers in Kenya and a reduction in foreign exchange.

“In terms of the economy, we project raking in USD 775 million, while Uganda is expecting approximately USD2.5 billion. This is because they have the oil industry and a lot of foreign direct Investments. Tanzania is likely to get USD 1.6 billion in Foreign Direct investment,” said Thugge adding that the Uganda and Tanzania Shilling started strengthening in 2019.

As a measure to stabilize the shilling, the Governor reiterated that there was need for the government to pay its debts every new financial year to allow access to funds it can borrow when need arises.

And to fund operations, Thugge said the Government is keen on borrowing Sh449.2 billion from the domestic market and simultaneously mobilize external funding from development partners and multilateral institutions for cheaper loans and grants.