The Kenyan shilling has appreciated significantly against major global and regional currencies, delivering renewed confidence in the local currency amid concerns over external debt and fiscal stability.
Data from the Kenya National Bureau of Statistics (KNBS) shows the shilling gained 13.6% against the US dollar, 16.3% against the Euro, and 14.2% against the British pound in the first quarter of 2025 compared to the same period in 2024.
In East Africa, it strengthened by 21.2% against the Tanzanian shilling and 11.7% against the Ugandan shilling during the same period.
Analysts attribute the shilling’s resurgence to several interlinked factors. Among them, a surge in diaspora remittances growing at an annualized rate of 14.1% to USD 4.96 billion in the 12 months to January 2025 has provided a robust foreign currency supply that cushions the exchange rate.
In addition, Kenya’s current account deficit narrowed to 4.0% of GDP in Q3 2024, improving to a projected 3.7% for the full year, due to stronger exports from coffee, tea and horticulture outpacing import growth.
The Central Bank of Kenya has also played a critical role by selling US dollars to smooth market volatility. By injecting forex reserves buoyed to USD 9.3 billion (4.7 months of import cover) by February 2025, up 28.2% year-on-year the regulator helped maintain exchange rate stability despite pressure from external debt repayments.
Meanwhile, high external debt servicing liabilities totaling roughly USD 4.57 billion in FY 2024/25 and rising continue to weigh on market sentiment.
Despite these gains, experts caution that the shilling’s strength may prove fragile. Commentary from local business forums highlights that much of the appreciation reflects oversupply of USD rather than robust improvement in fundamentals such as export-led growth or manufacturing expansion.
Concerns also linger over Kenya’s external debt levels external obligations account for nearly half of the national debt raising questions about long-term sustainability without structural reforms.
Market participants and users on platforms like Reddit have noted that the shilling’s appreciation above 130/- per dollar is likely driven more by technical shifts than by economic transformation. Many emphasize that retail prices have not declined, as businesses often delay repricing, meaning kenyan consumers haven’t fully reaped the benefits of currency gains.
Sector watchers warn that if dollar inflows dip due to lower remittances, export shocks, or tightened access to foreign funding the shilling could quickly depreciate.
Investors in the Nairobi Stock Exchange, where foreign capital accounts for over 60% of turnover, are particularly sensitive to forex volatility. A reversal in the positive trend could dampen foreign investment and market liquidity.
In summary, the Kenyan shilling’s remarkable appreciation against both global and regional peers reflects strong diaspora remittances, narrowing trade deficits, and Central Bank intervention amid rising forex reserves.
Yet analysts remain cautious, warning that unless export growth, debt sustainability, and investment fundamentals improve, the currency remains vulnerable to reversal.
Written By Ian Maleve
