Why the Govt Won’t Let the Shilling Appreciate Too Much – CS Mbadi Explains
Treasury Cabinet Secretary John Mbadi has defended the government’s decision to prevent the Kenyan shilling from appreciating too much against the US dollar.
Speaking before the Parliamentary Budget and Appropriations Committee on Thursday, March 27, Mbadi cautioned that an overly strong shilling could harm the country’s export sector. He warned that if exports decline, Kenya’s foreign exchange reserves would take a hit, increasing the country’s economic vulnerability.
“We cannot allow the shilling to appreciate too much; we assess that the shilling at 130 units is the most reasonable for our economy because if you make the shilling too strong, you discourage exports,” Mbadi stated.
He further explained that weaker exports would directly impact the country’s ability to meet its debt obligations.
“The moment you discourage exports, you will not have foreign exchange reserves, and you will be more exposed because now you cannot even pay your debts,” he added.
To strike a balance, Mbadi revealed that the government is actively managing the exchange rate to ensure both exporters and importers benefit. While a stronger shilling makes imports cheaper, it also reduces Kenya’s competitiveness in global markets, which could have long-term economic repercussions.
Beyond currency stabilization, Mbadi pointed out that the shilling’s recent appreciation had helped cut Kenya’s external debt. He noted that the stronger currency had reduced the country’s foreign debt from Ksh6 trillion to Ksh5 trillion.
“By the shilling just appreciating, that debt has come from Ksh6 trillion to Ksh5 trillion; the effect of this is that you pay less of the principal amount, and the interest charged is also less,” he explained.
To further address the country’s growing debt, Mbadi stated that the government was securing cheaper loans to replace expensive ones.
“You cannot just wake up one morning and decide to pay all your debts; it is not practical, so whatever debt you take must be cheaper than what you had for you to retire the old one,” he noted.
The finance minister also revealed that Kenya would turn to domestic borrowing, as multilateral lenders have started reducing their loan offers to the country.
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