The Kenyan Shilling has taken a beating from the world's major currencies.
The weakening of the Kenyan shilling can have several impacts on the country's economy, including:The weakening of the Kenyan shilling can have several impacts on the country's economy, including:
A weaker implies a raised cost of imported goods, including raw materials and finished goods. This could lead to higher inflation as businesses pass on higher costs to customers.- Reduced purchasing power: A weaker shilling raises the cost of imports, reducing Kenyan consumers' purchasing power. This can lead to a drop in demand for goods and services, which can harm businesses.
- Increased government debt: If the government has borrowed in foreign currency, a weaker shilling makes repayment more expensive. This can result in an increase in government debt, as well as higher taxes or reduced government spending. This is what our government is currently experiencing, no wonder we entered a deal with gulf states to have oil bought in Kenyan shillings to further reduce pressure on the shilling.
- Reduced foreign investment: A weaker shilling can make Kenya less attractive to foreign investors as their investments will be worth less in their home currency. This can reduce the amount of foreign investment coming into the country. Imagine making more profits in Kenyan shillings but on conversion, you realize that your profits are declining due to erosion of value of the shilling
Increased export competitiveness: - All is not gloom though a weaker shilling can make Kenyan exports more competitive as they become relatively cheaper to foreign buyers. Heard countries devaluing their currencies? Yeah, this is their reason. This can boost the country's export earnings and help to reduce the trade deficit. However, this usually works well for countries that are net exporters.
Is it time to get jittery
Overall, a weakening shilling can have both positive and negative impacts on the Kenyan economy. The extent of these impacts will depend on the specific circumstances at the time and how the government and other stakeholders respond to the situation.
