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Huge import bill is weakening the Kenya Shilling

 Huge import bill is weakening the Kenya Shilling

On a year-to-date basis, the shilling has depreciated 5.60 percent to the dollar, compared to 3.64 percent in 2021.

The Kenya Shilling shed close to four units in the five months to May 31 largely due to a burgeoning imports bill relative to earnings from exports.

The local currency depreciated against the dollar to trade at Kes119.47 on close of trading Thursday from Kes119.45 previously, the latest data from the Nairobi Securities Exchange shows.

On a year-to-date basis, the shilling has depreciated 5.60 percent to the dollar, compared to 3.64 percent in 2021. In January, one USD traded for about Kes113 compared to nearly 117 by the end of May.

The cost of imports in the reviewed five-month period totaled Kes1.02 trillion with crude oil, edible oils and fertilizers making up the bulk of commodities brought into the country.

Data from the Central Bank of Kenya (CBK) identified Russia’s invasion of Ukraine as the most significant factor for the huge import bill that has weighed down on the shilling and driving inflation.

Since the conflict started on February 24, the global economy has suffered supply chain disruptions which have in turn precipitated price increases for critical commodities as petroleum, metals, grains and fertilisers.

CBK statistics show that the country’s imports expenditure topped exports earnings by Kes666.2 billion.

The country used Kes352 billion on imports in the first five months of the year, a 13 percent jump relative to a similar period in 2021.

Read also: Sh24 billion subsidy plan keeps fuel prices unchanged

More than 25 percent of the expenditure on imports went to crude oil imports which cost Kes258.7 billion, representing a 90 percent increase relative to 2021 while also exposing Kenya to the risk of imported inflation.

The price of a barrel of crude oil shot up to $123 from $98 upon Russia’s invasion of Ukraine and has largely held above $100 since then. 

Kenya’s spending on fertilisers increased by 16 percent to Kes162 billion while expenditure on edible oils hit Kes62 billion up from Kes42billion a year earlier.

The rising level of imports and the ballooning trade deficit have adversely affected the local currency by depleting the country’s foreign reserves which are crucial to the stability of the Shilling. Additionally, the weak shilling has made for more expensive import costs which are eventually passed on to the final consumer thereby straining household budgets on the back of rising.

newsroom@maudhui.co.ke

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