The shortage of dollars, along with the depreciation of the value of the Kenyan shilling against the US dollar, is weighing heavily on the country’s economy.
The prices of a number of raw materials are already rising steadily, and experts warn that the situation could worsen in the coming days.
If the situation persists, Kenyans who are already struggling with inflation will have to bear the brunt and dig deeper into their pockets for several essential commodities.
Kenyans.co.keasked for an economist’s opinion on the short-term and long-term effects of a shortage of dollars and commodities whose prices are likely to rise.
Vehicles stuck in a traffic jam along Thika road.
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Kenya is a net importer and the shortage of dollars directly affects the economy. Here are 5 products whose prices are likely to rise:
- fuel
According to official data, Kenya imported fuel and lubricants worth Ksh 606 billion in 2022.
A liter of petrol currently retails at Ksh 177.3 for super petrol, Ksh 162 for diesel and Ksh 145.94 for kerosene, according to the Review of the Energy and Petroleum Regulatory Authority (EPRA) of February 14.
Pump prices are so sensitive and crucial that any upward revision of the reward causes a ripple effect on the economy.
“An increase in fuel prices affects everything else,” Ogutu noted.
- loans
Kenya is willing to pay more for loans taken in the past. This is because the government borrowed in US dollars when the exchange rate was low.
According to the Public Debt Committee of the National Assembly, Kenya’s debt stood at Ksh 9.15 trillion as of December 2022.
“It is worth noting that as a result of these exchange rate fluctuations, this country paid Ksh 5.4 billion in 2021/22. In the middle of this year, we have paid Ksh 2.05 billion as a result of changes in exchange rates,” said Abdi Shurie, the chairman of the Public Debt Committee during a debate on Wednesday 23 February.
In fact, one of the main reasons for the dollar shortage is foreign debt payments. Kenya has borrowed heavily from China and multilateral organizations such as the World Bank Group and the International Monetary Fund (IMF). By December 2022, Kenya owed K to the World Bank Grouph1.4 trillion.
- Raw materials
Many Kenyan manufacturers import raw materials for their products. Many times, dollars are used to pay for imports.
This means Kenyans will pay more shillings to get dollars to be able to pay for similar imports they made last year.
Kenya’s most valuable imports are petroleum oils, palm oil, compound medicines, wheat, and vehicles and machinery.
For example, fuel imports account for almost Ksh 450 billion, while vehicles account for almost Ksh 180 billion. These products account for almost 30% of Kenya’s total expenditure on imported goods.
- Food
The prices of a number of foods are expected to rise. “An increase in fuel prices will also affect food prices due to transport costs,” the economist added.
Although the government imports corn duty-free, the corn is paid for in dollars. This means imported maize will reach Kenyan shores at high prices.
Closely related to food is the price of cooking oil. Kenya imports most of its crude palm oil from Indonesia and Malaysia in US dollars. Edible oils are the second most imported product after petroleum. The country spends about Ksh 60 billion a year on the product.
- electricity
The shortage of dollars has affected the price of electricity for both households and industries. On February 28, Kenya Power sought regulatory approval for some of its customers to pay for their electricity in dollars.
However, the regulator rejected the request that sought to stop the parastatal from currency losses. This signaled to the market that one of the largest parastatals was feeling the pinch due to a shortage of dollars.
EPRA has already increased the fuel cost to Ksh 8.3 per kilowatt-hour kWh from Ksh 6.59 in February.
Supermarket managers restock cornmeal on their shelves.
