The Collapse Of Ksh Vs USD In Historical Perspective

Business
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I recall during my college days , we had an off campus presentation the Economics legend and Author , Prof: Northcote Parkinson , where he expounded on how Governments create an illusion of progress.

Typically by giving subsidies and then immediately thereafter , impose new Taxes and Levied …

In summary …
“…Robbing Peter to Pay Paul …” :rofl::joy:

One of the precious gems we learned from him …

Here’s one of the many lessons we should be taught in school but aren’t …

Parkinson’s Law.
If you want to get rich , break the law …

Fifty years ago , British writer and economist , Prof: C. Northcote Parkinson stated that most people retire poor because no matter how much they earn , they spend the entire amount and a little more besides.

This is known as Parkinson’s Law , and it’s still true today.

Even though they may be earning WAY more than they did at their first job , most people use every cent of their income to maintain their lifestyle.

No matter how much they make, there never seems to be enough , resulting in ever-growing debt, sleepless nights and financial frustration.

The only way to start accumulating wealth is to break Parkinson’s Law.
How …???
By making sure your expenses increase more slowly than your earnings , then investing what’s left over.

Here’s how to start.
Draw up a budget of all your monthly expenses. Examine every item and question it as if you were analyzing somebody else’s spending.
Look for ways to cut back.

Aim for a 10% reduction in your living costs over the next three months.

"Better yet , find ways to increase your income while reducing your expenses.

Once you’ve achieved that , resolve to save and invest 50% of any increase in earnings you receive.

This still leaves you the other 50% to play with.

If you do this for the rest of your career , regularly investing in revenue , properties or similar investments , according to Prof: Parkinson , you will retire rich …!! :joy::rofl:

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Ksh180 Billion Tea Inflows Behind Strengthening of Shilling Against Dollar

On Wednesday, March 20, the Kenyan Shilling continued its streak as the best-performing currency globally exchanging at 132 against the dollar.

Traders credited this upturn to a good business year in the tea industry as per Reuters.

Additionally, the shilling which had earlier been expected to hit Ksh200 by June 2023, is now forecast to strengthen.

The reliance on dollar inflows from tea exporters was identified as a huge catalyst in the appreciation of the Shilling a fortnight after it was revealed the sector was now contributing Ksh180 billion.

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Kenyan currency on display.

In March 2024, the Tea Board of Kenya Chief Executive Officer (CEO) Willy Mutai remarked that the tea industry had seen a 32 per cent growth.

Traders further revealed that diaspora remittances had remained on a steady growth trajectory complimenting the revenue brought by the tea sector.

“Kenya’s shilling was stable on Wednesday and was forecast to strengthen, helped by dollar inflows from tea exporters and diaspora remittances,” Reuters reported quoting traders.

According to the Central Bank of Kenya, although remittances in the month of February dipped, Kenya was on course for record diaspora remittances.

In January, Kenyans abroad sent home a record Ksh55 billion with the amount reducing slightly to Ksh52 billion in February.

Tea on the other part has continued to grow from strength to strength recording a 31 per cent growth in 2023 compared to 2022.

President William Ruto’s administration has identified a boost in agricultural production and an increase in dollar remittances as long-term plans to stabilise the Kenyan Shilling.

To that end, the Kenyan government has embarked on subsidising production through cheaper farm inputs as well as the exportation of human labour to developed nations.

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How Good Friday Announcement Could Impact Dollar Exchange Rate & Effect on Kenyan Shilling

On Friday, March 29, the United States Federal Reserve is expected to release its inflation gauge, the Personal Consumption Expenditures Price Index (PCE).

The data which will be released at a time when the US markets will have closed for the Good Friday holidays is expected to strengthen the Dollar which has been on a recovery trajectory.

The Dollar had slightly dipped on Tuesday, March 26, as investors waited on the Federal Reserve policy which would be a product of the anticipated inflation figures. The figures will determine if the U.S. Central Bank will cut interest rates for the third time in a year.

As reported by Reuters, while investors are glued on Good Friday’s core inflation figures, there are signs that the Dollar will strengthen.

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This is largely supported by a bigger-than-expected jump in U.S. durable goods orders in data published on Wednesday, March 27.

The data revealed that more countries were placing orders for long-lasting US goods compared to February 2024.

Additionally, business investment in equipment appeared to improve in the first quarter further contributing to the strengthening of the Dollar.

The strength or lack thereof of the Dollar has a direct impact on the Kenyan currency and the local economy.

This is largely because the dollar is the main currency of trade for Kenya and most other countries in the international market.

For example, on March 20, investors credited the growth of the Kenyan economy and the strength of the Shilling to dollar inflows from the tea industry as well as remittances from Kenyans in the diaspora.

At the time when the Kenyan Shilling was at its weakest in January 2024, exchanging at 160 against the Dollar, Kenyans in the export and service industry earned more as they were being paid in Dollars.

In November 2023, National Treasury Principal Secretary Chris Kiptoo urged more Kenyans to invest more in foreign exchange earners, such as the tourism sector to take advantage of the situation.

In February, the Shilling started gaining strength such that as of Wednesday, March 27, the Central Bank of Kenya (CBK) revealed that it was exchanging at 132 units against the Dollar.

While exporters are now earning less, importers are saving on costs since the Dollar is the main currency of international trade.

With Kenya importing most of the manufacturing raw materials, this means that a strong Shilling against the dollar will reduce manufacturing costs and subsequently lower the cost of goods.

In an earlier interview with Kenyans.co.ke, Economist Vincent Kimosop remarked that for the long-term stability of the Kenyan Shilling, the country needed to export more than it imported.

This would result in a surplus of Dollar reserves and a demand for the Kenyan Shilling which would strengthen the local currency.

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David Ndii Offers Explanation for Sudden Strengthening of the Shilling

On Friday, March 29, the Chairman of the Presidential Council of Economic Advisors David Ndii came out to address the basic economic principle that he claimed was behind the sudden gain of the Kenyan shilling.

Ndii argued that the sudden appreciation of the local currency was mainly due to an external, random variable called ‘Sunspots.’

Taking into consideration Ndii’s argument of sunspots, the sudden appreciation of the local currency was mainly due to external factors which influenced the financial markets.

“I keep asking you which fundamentals were driving the free fall. Seems y’all missed this class,” Ndii commented even as he expounded his argument.

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President Wiliam Ruto’s Chief Economic Advisor David Ndii

Factors such as investors’ sentiment, expectations, reactions to non-economic events, or novelty indicators can be classified as sunspots.

David Ndii was compelled to issue the explanation after questions were raised on the sudden stability of the shilling against the dollar.

A section of Kenyans demanded to know the exact fundamentals that made the shilling move that much over a short period and whether it was sustainable.

“Any attempt at explaining the appreciation of the shilling against the green buck in the last month or so should start with the steep depreciation that preceded the current rise. What caused the depreciation? was it a change of fundamentals?” questioned a Kenyan.

As of Thursday, March 28, commercial banks quoted the shilling at 131.00/132.00 against the dollar, a significant improvement within a week, comparing its performance to last Thursday, March 21, when the rate stood at 132.00/133.00.

The stability of the shilling has mainly been attributed to the oversubscription of Infrastructure bonds issued by the national treasury in January this year.

While the government sought to raise Ksh70 billion from the issuance of infrastructure bonds, the government received Ksh241 billion in offers from investors.

The government buyback of the Ksh310 billion ($2 billion) Eurobond maturing in June this year was serviced by a new Eurobond worth Ksh230 billion ($1.5 billion) issued by the government in February.

Moreover, tea exportation played a significant role in shilling stability. Reports suggest the sector was now contributing Ksh180 billion.

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World Bank Bribes Kenya With Ksh158 Billion On Climate Change Politics?

The Kenyan Shilling is expected to strengthen further after the World Bank approved Ksh158 billion to be disbursed by April 3.

The money which was approved on Tuesday, March 26, under First Kenya Fiscal Sustainability and Resilient Growth is expected to shore up Kenya’s foreign exchange reserves.

This will create a surplus of the United States dollar (USD) hence reducing the strain of Kenya buying foreign currency for international trade.

World Bank will be advancing the USD1.2 billion loan barely three months after Kenya raised USD1.5 billion through Eurobond.

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President William Ruto and World Bank Regional Vice President for Eastern and Southern Africa Victoria Kwakwa (in green) alongside other World Bank officials at State House Nairobi on February 7, 2023

The amounts have helped the Kenyan Shilling become the best-performing currency globally.

According to the World Bank, the money advanced to Kenya will be used to develop Kenya economically through trade and investments.

“To promote efficiency, equity, and transparency of public finance; foster more competitive and inclusive product and labour markets; and strengthen climate action,” the World Bank explained the proposed development objective of the loan.

World Bank appreciated President William Ruto’s efforts in climate change initiatives noting that his administration had positioned the country as a leading African voice on climate change.

In particular, the World Bank pointed out how Kenya was an architect of the Nairobi Declaration on climate change (2023).

“To finance Kenya’s climate action, this Development Policy Financing (DPF) supports an improved legal framework for carbon markets and the country’s sovereign green bond framework,” the World Bank detailed.

While awaiting approval for the loan, Kenya is expected to generate public expenditure savings through efficiency measures, strengthen the national social protection system, and reduce corruption.

Kenya is also expected to use the funds to reduce the cost of living which rose due to the pandemic and global factors including unrest in Europe and the Middle East.