Shilling weakens to five-year low of 106.5 to US dollar
By Dominic Omondi | March 21st 2020
The shilling continued its free-fall as the country’s external position took a beating from the coronavirus pandemic.
At some point, the local currency exchanged at a low of 106.5 against the dollar, the lowest since September 2015.
On Thursday, the Shilling was trading at 105.09 against the greenback.
Kenya’s economy has been ravaged by coronavirus, which has also hurt the global stock with investors unsure of what to do next.
Some experts have even predicted that it will not be long before the global economy sinks into recession -- where it contracts rather than expand.
A weakening of the shilling is a result of poor inflows of critical foreign currencies as a result of poor earnings from tourism, export and remittances.
However, with Kenya switching to expensive markets such as United Arab Emirates (UAE) -- as opposed to China -- the country’s import bill might spike.
Kenya has so far confirmed seven cases of Covid-19. Globally, the disease had claimed at least 10,447 lives of the 254,801 confirmed cases as at yesterday.
Investors at the Nairobi Securities Exchange have lost more than Sh200 billion since Friday, as foreign traders disposed of their holdings and put them into safe bets such as Treasury bonds.
The NSE management was forced to halt trading after the NSE-20 share index at some point nose-dived by more than five per cent.
Besides the decision by Central Bank of Kenya to buy more dollars to replenish the official reserves in what is aimed at helping the government to pay its debt, investors have also been evacuating their money from the economy.
Moreover, export earnings have dipped while tourist receipts have under-performed as the country stops entry of people from countries suspected to be the hotbed of the virus.
With the global economy heading into recession, Diaspora remittances from Kenyans living and working abroad, which have supported the shilling for a while, might also take a hit.
The travel industry, critical for earning the country foreign reserves, has been the hardest hit.
The Kenya Association of Travel Agents (KATA) CEO Agnes Mucuha said in a statement that the industry is currently witnessing a shutdown due to the highly contagious virus that has slowed down the economy globally.
“We are witnessing the shutdown of the travel industry. The economic effects are getting worse by the day and could become more permanent if the government does not act now,” said Mucuha.
She explained that the industry recorded a decline in passenger number bookings of 30 per cent, followed by a drastic cancellation of flight bookings, conferences and events resulting in a revenue loss to the sector of 85 per cent.
Over 90 per cent of forward bookings for the month of April 2020, said Mucuha, have also been cancelled since Europe, America and the Middle East issued lockdown notices for non-citizens.
“Our industry forecast on bookings for the period May to July 2020 is also extremely depressed as travellers have opted to postpone their travel until quarter four.”
Knock on demand
Some analysts have said Covid-19 is primarily a ‘supply’ shock and sooner or later the government’s aggressive means to contain its spread will dent demand.
“The first order knock on demand is definitely on trade (exports and imports) which is roughly 25 per cent of gross expenditure in any given year,” said Churchill Ogutu, a researcher at investment bank Genghis Capital.
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