The Kenyan shilling plunged to its lowest levels since January as political unrest gripped the nation, causing investor anxiety and economic disruption. The currency’s depreciation comes amid escalating protests over the rising cost of living and growing discontent with the government’s economic policies.
The recent riots have not only disrupted daily life but have also severely impacted the nation’s economy, sending the currency into a prolonged slide against the US dollar. This follows Moody’s downgrade a week ago, which highlighted higher borrowing needs and consequently increased Kenya’s liquidity risks.
Last week, the shilling closed at KSh 130.7299, higher than the previous week’s KSh 129.3, and started this week above KSh 131. Similarly, the year-to-date performance remained steady at 17.9%, supported by strong gains from large-cap stocks in the first half, indicating an overall recovery.
Kenya’s usable forex reserves dropped by 6.2% to US$7,409 million, covering 3.9 months of imports, down from US$7,896 million the week before. These reserves are below the required 4 months and the EAC’s requirement of 4.5 months.
Money sent home by Kenyans abroad totaled US$4,535 million in the 12 months to June 2024, 13% higher than the US$4,017 million in the same period the year before. The US was the largest source, making up 54% of the remittances.
The pressure on the shilling coincides with violent protests between the police and civilians, even after President William Ruto withdrew the controversial Finance Bill 2024, which caused the issue. The protests, driven by tech-savvy youth on social media, began in response to the Kenyan government’s plans to significantly raise taxes to address its massive debt.
Finance Bill 2024, in the context of an IMF program with Kenya, was expected to raise US$2.7 billion in additional revenues in the upcoming fiscal year, in part to meet IMF targets. The proposed bill included new taxes on items like mobile money transactions, diapers, and bread, among others, aiming to collect an additional Sh346 billion in taxes.
In a previous press briefing, the Government spokesperson Isaac Mwaura said that the nation had lost over Ksh.6 billion due to the wave of protests experienced in the past month. The spokesperson painted a picture that the country’s economy stands to worsen should the protests continue.
“The country lost 6 billion Kenya shillings ($45 million), according to the Kenya Revenue Authority (KRA) as a result of the demonstrations,” he said.
President William Ruto, in a bid to respond to protesters’ demands, cut government spending Thursday and reduced annual salaries for retired presidents from 180 million Kenya shillings ($1.4 million) to 99 million Kenya shillings ($756,000) to align with a revised budget. He also slashed the budget of the State House, the official residence of the president, by 54%.
President William Ruto has called for calm and urged protesters to engage in dialogue rather than violence. However, his appeals have done little to quell the unrest. The government’s heavy-handed response, including the deployment of security forces and the use of tear gas, has drawn criticism from human rights organizations and international observers.
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