The governor of the Central Bank of Kenya, Kamau Thugge, was grilled by Parliament on Tuesday over the unprecedented depreciation of the shilling against the dollar.
The shilling was trading at Ksh.150 per US dollar as of Monday evening, according to CBK.
Thugge cited several issues but insisted that demand for the dollar has forced the Kenyan shilling to depreciate.
“There is an excess demand for dollars. In August 2023, the supply exceeded the demand, and this is one of the structural issues to give a larger supply of dollars over time. In June -September, there was a slowdown in depreciation because of this increased supply,” he told the Parliamentary Finance and National Planning Committee.
The CBK Governor called for structural reforms to ensure that supply exceeds the demand sustainably.
“The rate cannot be reduced in a month; we need a continuous system that ensures sustainability,” he explained.
“Decline in international reserves caused overvaluation of the exchange rate. In 2022, the aggressive rise in interest rates was done to curb inflation. That affected the foreign exchange rate,” Thugge said.
He added that Kenya needs to invest in other forms of tourism to help with the flow of dollars into the country.
“We need to invest in Medical Tourism regionally to increase the flow of reserves and foreign reserves. In 2022-2023, Kenya had Ksh.1.3 billion in returns, with Tanzania making double in terms of travel receipts.”
Mr Thugge also urged Kenya to invest in direct foreign investments in order to attract foreign investors, claiming that the country receives 1.7% of its GDP from foreign investments.
He also stated that imports into the country have dropped from 13.2% to 11.4%.
“Imports have reduced and the exports have increased. The exchange rate is meant to encourage exports and decrease imports,” said Thugge.
However, the governor stated that due to the foreign exchange, exports are expected to remain unchanged this year, citing a slowdown in production in Europe, which also contributed to the slow exchange rate.
Thugge also stated that a meeting with the International Monetary Fund (IMF) will be held next week to discuss financial reforms and debt financing.
“We expect to get 400M dollars, how much we will get, I don’t know but it’s on the table. Expect Ksh.750 million from the World Bank by March next year. We have requested additional financing, an extra Ksh.530 million expected,” the CBK boss continued.
He was quick to clarify that the financing would not mean an increase in debt.
“It’s not borrowing but replacing expensive debt with affordable ones,” he continued.
