The Kenyan shilling has been facing a significant depreciation in the foreign exchange market, causing a ripple effect in the country’s economy. However, despite the challenges, Kenyans living abroad are taking advantage of the weaker shilling by increasing their remittance to their homeland. This article examines the trend and the impact of the currency’s depreciation on the Kenyan economy.
Diaspora Kenyans Increase Remittances to Counter Weaker Shilling
The Kenyan shilling has been on a downward trend, losing about 9% of its value against major currencies in the past year. This depreciation has resulted in high inflation, making imports expensive and driving up the cost of living in the country. Nonetheless, Kenyans living abroad are using the opportunity to support their families back home by remitting more funds.
According to data from the Central Bank of Kenya, remittances from the diaspora increased by 10.7% to $290.5 million in May 2021, up from $262.4 million in the same period in 2020. The increase underscores the importance of diaspora remittances in supporting the country’s economy, particularly during times of crisis.
Analyzing the Impact of Currency Depreciation on Kenya’s Economy
The depreciation of the Kenyan shilling has both positive and negative impacts on the country’s economy. On the one hand, it makes exports cheaper and more competitive in the global market, boosting the country’s foreign exchange earnings. On the other hand, it makes imports more expensive, leading to higher inflation and increasing the cost of living for ordinary citizens.
Moreover, the depreciation has a significant impact on the country’s external debt servicing, as most of the government’s loans are denominated in foreign currencies. A weaker shilling means higher debt service costs, which can strain the country’s budget and limit its ability to invest in critical sectors such as health, education, and infrastructure.
In conclusion, the weaker Kenyan shilling is a double-edged sword, with both benefits and drawbacks for the country’s economy. However, the increase in diaspora remittances is a silver lining, providing a lifeline for many families struggling to make ends meet. Going forward, policymakers must implement measures to stabilize the currency and mitigate the impact of currency fluctuations on the economy.