The country is reaping big from the bitter-sweet economic policies of the Kenya Kwanza government.
The steady appreciation of the shilling has cut Kenya's debt by at least Sh1 trillion, the country's chief banker says.
"Apart from the overall drop in debt by Sh1 trillion, the appreciation of the shilling has also helped Kenya cut interests paid," Central Bank Governor Kamau Thugge told the Star in an exclusive interview.
"When the shilling gains by a unit against the greenback, our external debt drops by Sh40 billion. We are now at 30 units, slashing the debt by at least Sh1 trillion."
The government's moves have rallied international investors back into the country to reap an upswing of 49 per cent in dollar returns.
This saw the Nairobi Securities Exchange named the world’s best-performing stock market in 2024 in a recent market analysis by Bloomberg, which attributed the rise to solid economic policies.
The all-share stock index in Nairobi (NASI) has rebounded from a 43 per cent plunge in 2023 when the index was trading at levels last seen in 2011.
In a media address after unveiling of the 2023-28 strategic plan, Capital Markets Authority CEO Wycliffe Shamiah thanked the government for coming up with innovative economic strategies that have rejuvenated the shilling to below Sh127 against the greenback.
Shamiah revealed that investor wealth at the bourse has increased by Sh327 billion since January 2.
"This is no mean task. International portfolio investors have begun relooking at our market and we note BlackRock's decision to reinvest at NSE after a four-year break, which marks a significant milestone," Shamiah said.
The New York-headquartered investment management is the world’s largest asset manager, with $10 trillion in assets.
Last week, the chairperson of the Kenya Association of Manufacturers Antony Mwangi led local investors in hailing the government's effort to stabilise the shilling, driving up activities in the private sector.
The past two monthly Purchasing Managers Index (PMI) by Standard Bank have averaged 50 points, attributed to a continued slowdown in inflationary pressures on the stable shilling.
The Kenya Bankers Association chairperson and managing director of NCBA Group John Gachora says the steady shilling reflects growing confidence in Kenya's macroeconomic performance and outlook.
"This is rightly attributable to growing confidence in Kenya's macroeconomic performance and outlook, including the recent floatation and successful pricing of a $1.5 Eurobond."
The shilling was trading 127 units against the greenback by the time of going to press, with analysts at Renaissance Capital betting it to clock Sh120 by the end of the government's financial year in June.
Just two months ago, it was among the worst-performing currencies in the continent, having shed over 30 units to hit an all-time low of Sh165 against the US dollar in February.
Even so, behind the glow in the economy that has seen inflation ease from a decade-high of 9.6 per cent in October 2022 when President William Ruto came to power to 5.7 per cent last month, lies an elaborate economic recovery strategy that was rubbished by experts as 'pure guesswork'.
Tom Vwamu, a lead economist at LDD Capital in Mauritius, says he never dreamt of even a quarter of the current economic picture. "Everything was tumbling and the national psych was at its lowest," he says.
He attributes the current economic spark to the successful Eurobond issue and debt buyback, coupled with capital injection from the International Monetary Fund IMF and the World Bank.
On February 18, Kenya defied negative international sentiments to successfully issue a new Eurobond worth $1.5 billion (Sh238 billion) to buy back the inaugural one due on June 24. (The US dollar exchanged at Sh160).
Kenya had earlier toyed with the idea of issuing a new bond to execute a buyback but retreated after Moody’s Investors Service warned that it may treat it as debt default.
Fear escalated in December last year when Ethiopia became Africa's third default in as many years after it failed to make a $33 million coupon payment on its only international government bond.
Apart from the Eurobond buyback, Ruto's administration adopted a new oil import plan meant to save the economy from exchange rate volatility by eliminating the spot purchases for US dollars by about 100 oil marketing companies.
Adopted in March last year, the government-to-government oil import plan is where appointed firms import fuel on credit guaranteed by the government to sell to local oil marketers in shillings.
The appointed local lender partner then exchanges local currencies into US dollars for 180 days and pays Gulf firms.
According to the Energy and Petroleum Regulatory Authority, the plan eases monthly pressure to source $500 million that used to overwhelm the country's limited forex reserves during the Open Tender System regime.
"The arrangement with Gulf oil firms has eased pressure on the shilling with a reduction in depreciation against the US dollar from a high of three per cent per month to a percentage,'' Epra director general Daniel Kiptoo told the Star.
In December, Ruto told a media roundtable that his administration had laid out three ways in which to strengthen the Kenyan currency.
He defended the introduction of the importation levy on some items that can be produced locally.
"That is the reason we have put a levy on the import of these unnecessary imports of products into Kenya so that we can stem the export of our foreign currency and manufacture those items locally," Ruto said.
His administration also followed the global monetary policy trend, hiking the cost of borrowing.
Apex banks globally use the interest rates as either a gas pedal or a brake on the economy when needed.
They set the short-term borrowing rate for commercial banks and the banks pass it along to consumers and businesses.
With inflation running high, they can raise interest rates and use that to pump the brakes on the economy to get inflation under control.
Kenya has revised the base lending rate upwards at least four times since January last year.
However, early this month, the Central Bank of Kenya's Monetary Policy Committee retained the benchmark rate at 13 per cent, citing a drop in the overall cost of living.
Latest data from the Kenya National Bureau of Statistics shows that the overall inflation dropped to 5.7 per cent in March from 6.3 per cent in February, driven by lower food and fuel inflation.
The Central Bank expects inflation to moderate further in the near term, thanks to pass-through effects of the recent exchange rate appreciation, and the impact of monetary policy actions which continue to filter through the economy.
"The current monetary policy stance will ensure that overall inflation continues to decline towards the five per cent mid-point of the target range,'' CBK governor Thugge told journalists during a recent post-MPC update.
He hailed current rains witnessed across the country for the lowered food inflation to 5.8 per cent in March from 6.9 percent in February, reflecting lower prices of some food items particularly maize and wheat products, carrots,sukuma wiki, spinach, and cabbages.
But the ongoing ship attacks in the Red Sea by the Houthi movement worry the apex bank boss.
"We are worried that the current stalemate in the Red Sea will negate the progress. Constant bombs have become the order of the day, forcing inflation in the US economy to flip upwards," he said.
"This is likely to trigger an upsurge in the federal rate that will take us back to where we were with the shilling and the spiral effects that come with monetary measures to curb inflation."
The country's total public debt is currently at Sh11.2 trillion, with external debt standing at Sh6.1 trillion while the domestic one is at Sh5.1 trillion.