By John Gachiri
In Summary
- Economists, however, say currency has negative and positive impact on economy.
The strengthened shilling has lessened Kenya’s
foreign debt burden by reducing its rate of growth in the past three
quarters, a budget review by the Treasury has showed
.
.
The review for up to third quarter of the
financial year 2012/2013, published by the ministry of finance, shows
that between June 2012 and March 2013 Kenya’s foreign debt increased to
$9.9561 billion (Sh844 billion) from $9.195 (Sh780 billion).
But the pace of the debt’s growth, when broken
down on a quarterly basis, has decelerated. Between June and September
2012 it grew by $220.3 million (Sh18.7 billion), which reduced to $135.7
million (Sh11.5 billion )in the next quarter (September –December 2012)
and in the first quarter of this year it grew by $9.4 million (Sh797
million)
.
.
“This decrease is attributed to the strengthening
of the Kenya shilling to the dollar between the period under review,”
says the Budgetary review report.
The shilling gained sharply last year after having dropped to an all-time low of 107 units to the dollar in mid October 2011.
It remained stable for most of 2012 and only
weakened slightly towards the March 4 General Election, touching the 87
units exchange rate before regaining to the current range of 85-84
level after the polls passed peacefully.
The Treasury report shows foreign loans accounted for Sh818.76 billion out of total public debt of Sh1.685 trillion
.
.
Economists, including the World Bank, have however
said strengthening of the shilling had both negative and positive
impact on the economy
.
.
The Institute of Economic Affairs (IEA), a think
tank, echoed a recent assertion by the World Bank which said that
strengthening of the currency hurts exporters by making Kenyan goods
more expensive in international markets
.
.
The IEA chief executive, Kwame Owino, said in an
interview that since Kenya has chosen a growth model that focuses on
exporting goods, a strong shilling makes locally made goods less
competitive in foreign markets
.
.
“It becomes difficult to export goods and create jobs including in the tourism sector,” Mr Owino said.
Analysts have also said that the government needs to slow down on how much it its borrowing
.
.
“In our view, we believe that the debt level will
continue to soar, especially with the implementation of the new
Constitution. In addition, based on the fact that the recurrent
expenditure continues to increase, we believe there will be an overall
slowdown in national development,” said a 2013 Economic Outlook report
by Old Mutual Securities.
The planned sovereign bond issue is set to increase the foreign debt.
The Budgetary Review Report shows that as at March
2013, Japan was Kenya’s largest bilateral lender at $1.02 billion
(Sh86.5 billion) while the World Banks’ International Development
Association (IDA) and the International Fund for Agricultural
Development (IFAD) accounted for $3.63 billion (Sh308 billion
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