Uganda’s UGX stable as Kenya shilling (KSH) freefall accelerates

The Ugandan shilling has held quite stable in the past few months as some African currencies like the Zimbabwe dollar, Nigerian naira, and Kenyan shilling sink. The USD/UGX exchange rate was trading at 3,787 on Wednesday, the same level where it started 2023. It has risen by about 5% from its lowest point in 2023 and by 8.3% from its 2022 lows.

The picture is significantly different in neigbouring Kenya, where the shilling has nosedived. The USD/KES has risen in every week since May 2021 and is now nearing the crucial resistance point at 160. It has plunged by almost 60% from 2020, making it one of the worst-performing currencies in Africa.

Uganda shilling vs Kenya shilling

The Kenya shilling’s freefall stems from the country’s ballooning trade and budget deficit and the ongoing dollar shortage. It has also crashed because of the rising public debt and the looming $2 billion maturities. In October, the government raised its 2023/24 deficit forecast to 5.3% from 4.4%.

The Kenyan government policies have not made things better. Instead of stimulating the economy, William Ruto’s government has made it difficult for companies to operate, leading to a higher unemployment rate. In 2023, the government passed the annual finance bill that included many tax increases, that have pushed inflation higher. 

At the same time, the national and county governments have not done anything to streamline the public sector. Like Argentina, whose currency has also collapsed, the two levels of government are the biggest employers in Kenya. As a result, the government spends most of the taxes on salaries, instead of development.

Kenya has also received several credit rating downgrades in the past few months. In May, Moody’s downgraded the country’s debt to B3 from B2, essentially moving it to junk status. Fitch also downgraded the economy to B, warning that higher debt servicing costs will weigh on the economy. S&P Global has also revised the outlook to negative from stable.

The outlook for the Kenyan shilling is dire, especially now that many people have shifted their savings to the US dollar. At the same time, the private sector remains on edge as import costs have escalated recently. 

To be sure. Kenya is not the only African country that is struggling. Neighboring Ethiopia recently defaulted on its government bonds, pushing its currency to a record low. In Rwanda, the franc has plummeted to 1,260 from 880 in 2020. Elsewhere, in Nigeria, the naira has crashed to 1,250 from 650 in 2023. The Angolan kwanza and egyptian pound have also continued retreating. 

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