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Kenya’s Shilling Hits Record Lows Despite $900 Million Pledges, Analysts Predict Further Weakness

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New funding pledges of nearly $900 million ahead of a Eurobond repayment deadline are failing to defend Kenya’s shilling from fresh lows, with analysts forecasting further weakness as the rising cost of imports heightens demand for dollars.

Africa’s second-worst performing currency for 2024 fell to a record 162.29 against the dollar on Monday, extending losses since the start of 2023 to more than 23%.

The worst-case scenario among five analysts and traders polled by Bloomberg is for the shilling to depreciate to as low as 210 against the US currency by the end of the year, with the mildest forecast at 171.

Further weakness will result in additional increases in the cost of imports and prices of items that include foreign-currency adjustments, such as electricity. Debt-service costs will also rise as the government races to raise funding against a June-deadline for the $2 billion eurobond.

“The government will have to chip in more in terms of repaying that loan,” said Timothy Kiarie, a Nairobi-based financial analyst at foreign-exchange broker Scope Markets. “Given that fundamentals haven’t changed much and that the Central Bank of Kenya is still struggling with dollar reserves, a widespread panic could accelerate the loss on the Kenya shilling.”

The shilling traded 0.2% lower at 162.27 against the dollar at 1:50 p.m. in Nairobi, extending losses for the year to 3.4%. Yields on Kenya’s 2024 Eurobond fell 96 basis points to 13.40%.

Kiarie forecasts that the shilling will weaken to 210 against the dollar by year-end. Rufas Kamau, market analyst at foreign-exchange trading platform FXPesa, sees a level of 200 over the same period while Charles Robertson, head of macro-strategy at Dubai-based Frontier Investment Management Partners Ltd. expects a milder depreciation to 171.

Two other economists, Churchill Ogutu at IC Asset Managers and Nairobi-based Reginald Kadzutu, are expecting a level of as low as 180 against the dollar.

While a weaker shilling will have little benefit for exports, with low elasticity in demand for major items such as tea, more expensive imports in the form of oil will fuel domestic inflation and weigh further on the currency, Kadzutu said.

IMF Support

Still, currency weakness doesn’t only signal bad news as the current flexible exchange-rate policy carries the support of the International Monetary Fund, Robertson said. The Washington-based lender agreed last week to immediately disburse to $684.7 million to Kenya as part of a broader support program, with the country raising an additional $210 million from pan-African lender Trade & Development Bank.

“The weaker shilling is a signal that Kenya’s authorities recognize the need to stay onside with external creditors,” Robertson said. “The 2024 Eurobond will be repaid, the cheaper currency should improve the current-account and the central bank is committed to keeping inflation under control with suitably high interest rates.”

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Economy

Federal Government Appeals to Electricity Union Amid Tariff Hike Tensions

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The Federal Government has made a direct appeal to the National Union of Electricity Employees (NUEE) amidst rising tensions over the recent hike in electricity tariffs.

The plea comes as the union continues to voice its dissatisfaction with the government’s decision to remove the subsidy on the tariff payable by Band A customers, warning of potential service withdrawal if the decision is not reversed.

In an interview with our correspondent, Adebiyi Adeyeye, the National President of the NUEE, reiterated the union’s stance against the increase, citing the impracticality of expecting their members to collect higher tariffs from customers without a proportional improvement in service.

Adeyeye emphasized the union’s concerns over the discrepancy between the promised 20 hours of daily power supply and the actual delivery, which he deemed “not feasible” due to existing infrastructural limitations.

The Federal Government, represented by Minister of Power Adebayo Adelabu, called for understanding and patience from the union. Speaking through his media aide, Bolaji Tunji, Adelabu assured that efforts were being made to improve electricity supply across the nation. He emphasized the necessity of these changes for the country’s long-term economic growth and job creation.

“We just want to appeal to the labor union to understand the context of these changes. It’s about working together to address the underlying issues within the power sector. It is not anybody’s joy that there are blackouts all the time,” Adelabu stated.

He added that the steps being taken would ultimately benefit the economy and urged the union to bear with the government during this transitional phase.

Adeyeye maintained that the union’s primary objective is to safeguard the well-being of its members, who are facing increased threats due to the tariff hike.

He stressed the need for immediate action from the government to resolve the issues, stating that the union would withdraw its services if necessary.

As the standoff continues, the public watches with interest, hoping for a resolution that will avoid disruptions to the country’s power supply and maintain a harmonious relationship between the government and electricity workers.

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Minister of Power Pledges 6,000 Megawatts Electricity Generation in Six Months

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Adebayo Adelabu has made a bold pledge to ramp up electricity generation to 6,000 megawatts (MW) within the next six months.

This announcement comes amidst ongoing efforts to tackle the longstanding issue of inadequate power supply that has plagued the country for years.

During an appearance on Channel Television’s Politics Today program, Adelabu said the government is committed to resolving the issues hindering the power sector’s efficiency.

He expressed confidence in the administration’s ability to overcome the challenges and deliver tangible results to the Nigerian populace.

Currently, Nigeria generates and transmits over 4,000MW of electricity with distribution bottlenecks being identified as a major obstacle.

Adelabu assured that steps are being taken to address these distribution challenges and ensure that the generated power reaches consumers across the country effectively.

The minister highlighted that the government has been proactive in seeking the expertise of professionals and engaging stakeholders to identify the root causes of the power sector’s problems and devise appropriate solutions.

Adelabu acknowledged the existing gap between Nigeria’s installed capacity of 13,000MW and the actual generation output, attributing it to various factors that have impeded optimal performance.

Despite these challenges, he expressed optimism that the government’s initiatives would lead to a substantial increase in electricity generation, marking a significant milestone in Nigeria’s energy sector.

Addressing concerns about the recent decline in power generation due to low gas supply, Adelabu assured Nigerians that measures are being taken to rectify the situation.

He acknowledged the impact of power outages on citizens’ daily lives and reiterated the government’s commitment to providing stable electricity supply within the stipulated timeframe.

The Minister’s assurance of achieving 6,000MW of electricity generation in the next six months comes as a ray of hope for millions of Nigerians who have long endured the consequences of inadequate power supply.

With ongoing reforms and targeted interventions, there is optimism that Nigeria’s power sector will witness a transformative change, ushering in an era of improved access to electricity for all citizens.

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Nigeria’s Economic Woes to Drag Down Sub-Saharan Growth, World Bank Forecasts

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The World Bank’s latest report on the economic outlook for Western and Central Africa has highlighted Nigeria’s sluggish economic growth as a significant factor impeding the sub-region’s overall performance.

According to the report, while economic activities in the region are expected to increase, Nigeria’s lower-than-average growth trajectory will act as a hindrance to broader economic expansion.

The report indicates that economic activity in Western and Central Africa is set to rise from 3.2 percent in 2023 to 3.7 percent in 2024 and further accelerate to 4.2 percent in 2025–2026.

However, Nigeria’s growth, projected at 3.3 percent in 2024 and 3.6 percent in 2025–2026, falls below the sub-region’s average.

The World Bank underscores the importance of macroeconomic and fiscal reforms in Nigeria, which it anticipates will gradually yield results.

It expects the oil sector to stabilize with a recovery in production and slightly lower prices, contributing to a more stable macroeconomic environment.

Despite these measures, the report emphasizes the need for structural reforms to foster higher growth rates.

In contrast, economic activities in the West African Economic and Monetary Union are projected to increase significantly, with growth rates of 5.9 percent in 2024 and 6.2 percent in 2025.

Solid performances from countries like Benin, Côte d’Ivoire, Niger, and Senegal are cited as key drivers of growth in the region.

The report also highlights the importance of monetary policy adjustments and reforms in supporting economic growth.

For instance, a more accommodative monetary policy by the Central Bank of West African States is expected to bolster private consumption in Côte d’Ivoire.

Also, investments in sectors such as agriculture, manufacturing, and telecommunications are anticipated to increase due to improvements in the business environment.

However, Nigeria continues to grapple with multidimensional poverty as highlighted by the National Bureau of Statistics.

Over half of Nigeria’s population is considered multidimensionally poor, with rural areas disproportionately affected. The World Bank underscores the need for concerted efforts to address poverty and inequality in the country.

Sub-Saharan Africa as a whole faces challenges in deepening and lengthening economic growth. Despite recent progress, growth remains volatile, and poverty rates remain high.

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