The Kenyan shilling has continued its downward slide against major global currencies, exacerbated by ongoing youth-led demonstrations and a recent credit rating downgrade by Moody’s. As of yesterday, the local currency was trading at Sh131 per US dollar, a significant drop from Sh128.75 on Monday. The British pound also saw a rise in exchange rate, moving from Sh167.3 to Sh170.3 within the same period.
The depreciation of the shilling reflects broader economic concerns, as highlighted by the NCBA Treasury Department. The department reported that the local currency has been struggling, with recent forex figures indicating a decline against not only the US dollar but also regional currencies. “The local unit continued to lose ground against the greenback, closing the session lower than its opening levels yesterday,” said the NCBA Treasury unit.
The downturn in the shilling’s value comes in the wake of Moody’s decision on July 9 to downgrade Kenya’s sovereign credit rating. Moody’s cited a “diminished capacity to maintain revenue-based fiscal consolidation” as the primary reason for the downgrade. The rating agency adjusted Kenya’s foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings from B3 to Caa1, maintaining a negative outlook for the country.
Moody’s report emphasized the implications of the Kenyan government’s policy decisions on fiscal management. The downgrade followed the government’s choice to forego planned tax increases in favor of expenditure cuts to address the fiscal deficit. This policy shift, according to Moody’s, has significant ramifications for Kenya’s fiscal trajectory and financing needs.
In addition to economic pressures, the shilling’s decline is compounded by ongoing civil unrest. Youth-led protests have erupted across the country, demanding changes and reforms. The situation was further inflamed by the contentious Finance Bill 2024, which President William Ruto withdrew in response to public outcry. Despite the withdrawal, the unrest has persisted, contributing to economic instability and affecting investor confidence.
The combination of fiscal challenges, political unrest, and external economic pressures presents a complex scenario for Kenya. As the country navigates these turbulent times, the future of the shilling and the broader economic outlook will depend on both domestic policy responses and global economic conditions.
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