According to the Parliamentary Budget Office report, the Kenyan Shilling has depreciated significantly against global and regional currencies in the fiscal year ending September 2023.
The Quarterly Economic and Fiscal Update (July-September 2023) Report revealed that the shilling has lost up to 38 percent to the pound, and 12 percent to the Tanzanian Shilling.
“The shilling has lost 23 per cent to the US Dollar, 38 per cent to the Sterling Pound, 33 per cent to the Euro, 21 per cent to the Uganda Shilling and 12 per cent to the Tanzania Shilling between September 2022 and September 2023,” the report shows.
The report further emphasized that the strain on the Kenyan Shilling is driven by continuous demand for imports, a sluggish rebound in capital inflows due to elevated foreign interest rates, increased demand for the US dollar, and the ongoing global strengthening of the US dollar.
“Domestically, the cost of living remains a key concern as prices of food, fuel, energy and other inputs remain elevated amid the rising cost of debt service, tight fiscal space, foreign exchange liquidity challenges, depreciation of the shilling and constrained business environment,” the report said.
The Quarterly Economic and Fiscal Update (July-September 2023) Report also highlighted that Kenyan borrowers are facing difficulties in fulfilling their debt commitments. It revealed potential challenges for lenders in recouping funds extended to Kenyan borrowers, posing a threat to their financial well-being.
“There may be a need to restructure the non-performing loans resulting in an additional burden on borrowers in revised interest rates,” the report said.
The challenges facing Kenyan borrowers, as outlined in the report, were attributed to the elevated cost of borrowing resulting from the tightening of the monetary stance.
Additionally, the weakened business environment, influenced by the depreciation of the shilling, was identified as a contributing factor.
The report also placed blame on the high cost of fuel, outstanding bills, and new tax measures, all of which have collectively diminished household disposable incomes and purchasing power.
“Although credit to the private sector has remained stable, the rate of non-performing loans has risen sharply,” it said.
The report also noted a significant increase in the stock of non-performing loans, reaching a 16-year peak of 15 percent as of August 2023. This marks a notable rise from the 13.3 percent recorded in December 2022.
The report cautioned that in the future, inflation might persist at elevated levels and could potentially increase in the event of additional shocks, such as heightened tensions in the war in Ukraine and the Israel-Palestine conflict.