This archive report was first published on 9 January 2020.
As the world grapples with escalating tensions in the Middle East, Kenya's economy is bracing for a potentially tumultuous year ahead. According to analysts, the country's shilling is likely to come under intense pressure in 2020.
On Wednesday, the Kenyan shilling exhibited relative stability against the US dollar, largely due to low demand for hard currency from importers. Commercial banks quoted the shilling at 101.25 buying and 101.45 selling, compared to 101.15 buying and 101.35 selling against the greenback at Tuesday's close.
David Ngugi, an analyst at Cytonn Investments, attributes the shilling's strength to high foreign exchange reserves, fueled by diaspora remittances and Eurobond proceeds. However, he warns that these fundamentals will change significantly in 2020, citing the government's decision to scrap the 10% tax on diaspora remittances and the looming repayment of SGR loans to China.
As global crude oil prices rise, Kenya's import bill and balance of payments position are likely to worsen, further pressuring the shilling. Ngugi notes that the ongoing tensions in the Middle East will have a direct impact on the shilling's behavior.
According to a Central Bank of Kenya report, the shilling has remained relatively stable against major international and regional currencies, exchanging at KSh 101.34 per US dollar on January 2, 2020, compared to KSh 100.63 on December 24, 2019. Foreign exchange reserves stood at US$ 8,758 million (5.4 months of import cover) as of January 2, 2020.
