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Importers hit as shilling weakens against dollar

NEWS
By Dominic Omondi | September 9th 2021

The shilling has been on free-fall since the end of July when it was trading at 108.2 against the dollar. [Courtesy]

The weakening of the Kenya Shilling has hit importers hard after the local currency declined to a seventh-month low to trade at 110.08 against the dollar.

This is the lowest rate since February 2 when the dollar exchanged at 110.14, according to Central Bank of Kenya (CBK) data.

The shilling has been on free-fall since the end of July when it was trading at 108.2 against the greenback.

This threatens to hit the cost of living from imports such as petroleum products, electricity, wheat and mitumba.

A weak shilling will also negatively impact the country's payment of foreign debt, which is largely denominated in dollars.

However, a weaker shilling is a boon for exporters who will earn more for their products in the global markets.

Kenyan paper currency. [Wilberforce Okwiri, Standard]

Kenya exports mostly tea, coffee, flowers, fruits and vegetables, which are critical foreign exchange earners for the country.

Given that the flow of the country's tourist receipts has been low due to Covid-19's impact on travel, the country has relied largely on export earnings and diaspora remittances to replenish its foreign exchange reserves (forex).

Forex declined by Sh51.5 billion in less than a month due to a drop in tourist earnings and high import bills.

Data from CBK shows forex reserves stood at $8,883 million (Sh977.13 billion) as of September 2, down from $9,352 million (Sh1.03 trillion) on August 5.

This was enough to cover the country’s import bill for at least 5.43 months compared to 5.72 months on August 5.

In its Weekly Bulletin, however, CBK exuded confidence on reserves, saying they meet the apex bank’s statutory requirement to maintain at least four months of import cover "and the East Africa Community region’s convergence criteria of 4.5 months of import cover."

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