The governor of the central bank of Kenya, Kamau Thugge has said that the country’s currency, the shilling, which is trading at a historically low rate, has been overvalued for several years.
The currency hit a new all-time low on Monday, at 150 shillings to the dollar, down 24% year-on-year.
The governor made this known to a parliamentary committee on Tuesday.
“I think for several years now we have had an overvalued exchange rate.
“We have tried to maintain a fairly strong exchange rate artificially at the cost of losing international reserves”. he said
Thugge said that around five years ago, the International Monetary Fund and the World Bank considered the shilling to be between 20% and 25% overvalued, adding that the country’s foreign exchange reserves cover less than four months’ imports.
“This is still sufficient to deal with any emergencies,” he added.
According to Treasury figures, this depreciation makes imports more expensive and adds to Kenya’s debt burden, which stood at more than 10,100 billion shillings (64.4 billion euros) at the end of June.
The Kenyan economy was seriously shaken by COVID-19, followed by the shockwaves of the war in Ukraine and a historic drought in the Horn of Africa.
Economic growth slowed to 4.8% last year, compared with 7.6% in 2021, and growth forecasts for 2023 are lower than for 2022.
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