Boost for importers, Treasury as shilling holds forex gains

Data from the Central Bank of Kenya published Friday showed the shilling trading flat at Sh129.02 to the US dollar for the week ending February 19. [File, Standard] 

The Shilling is expected to maintain its recent stability against the US dollar, boosted by strong foreign exchange reserves and improved access to external financing, analysts say.

This offers a crucial reprieve to President William Ruto’s administration as it grapples with a cost-of-living crisis with just under eighteen months to the polls. 

Data from the Central Bank of Kenya (CBK) published Friday showed the shilling trading flat at Sh129.02 to the US dollar for the week ending February 19. 

The currency’s resilience is underpinned by foreign exchange reserves, which stand at a record high of $12.66 billion (Sh1.64 trillion), sufficient to cover 5.5 months of imports, well above the statutory requirement of four months.

The strengthening of the Shilling eases the financial strain on the country by lowering the cost of essential imports, including fuel and vehicles. 

It also sets the stage for a reduction in electricity tariffs and provides much-needed relief from the servicing distress of Kenya’s substantial public debt, which stood at Sh12 trillion as of December.

For the embattled Ruto administration, which faces public pressure to create jobs and rein in soaring living expenses ahead of the 2027 General Election, the shilling’s steadiness offers a rare positive economic signal.

Analysts attribute the currency’s performance to increased liquidity in the market, partly supported by external funding. 

The CBK does not publicly disclose its activities in the money market, making it difficult to ascertain the extent of its interventions, if any, when the shilling faces downward pressure.

However, London-based financial services firm Ebury said in its latest Africa Forex Outlook that the CBK has been able to actively support the currency.

“External funds have been sourced from export inflows, diaspora remittances, a $500 million (Sh65 billion) loan from Abu Dhabi and eurobond proceeds,” Ebury noted in the report, a copy of which was seen by The Standard.

Additional financing from multilateral lenders like the African Development Bank and the World Bank is expected to further boost reserves. Despite the positive short-term outlook, significant fiscal hurdles persist.

“Fiscal challenges continue to cast a shadow over the shilling’s outlook, with reforms slow and revenues failing to keep pace with spending,” Ebury said.

The government revised its fiscal deficit forecast for the financial year 26/27 upwards to 5.3 per cent from 4.9 per cent in December.

Ebury Senior Market Analyst Roman Ziruk noted that while rating agencies S&P and Moody’s have upgraded Kenya’s outlook, the structural problems remain acute.

“We stress that fiscal challenges remain, however, as the country continues to suffer from low tax revenues and high debt obligations, which pose risks to its long-term stability,” Ziruk said.

“Kenya’s relative economic resilience and access to international funding could provide the shilling with short-term stability, but careful fiscal management will be critical to sustaining it.”

Ebury projects a flat trajectory for the greenback to the Kenya Shillings exchange rate for the foreseeable future, though it warned that the country faces an “eye-watering” $26 billion (Sh3.38 trillion) funding requirement over the next decade to service maturing foreign debt.

Kenya’s previous programme with the International Monetary Fund (IMF) ended without the final disbursement after the country breached fiscal deficit targets. 

Furthermore, a $750 million (Sh97 billion) World Bank loan remains frozen as Nairobi has yet to meet all the required conditions.

In the money markets, liquidity remained ample, with commercial banks’ excess reserves averaging Sh44.3 billion above the required cash reserve ratio. 

This environment has allowed the CBK to continue its monetary policy easing, with the benchmark lending rate cut by 225 basis points in 2025 to nine per cent as inflation stabilised around 4.5 per cent, within the central bank’s target range.