Kenya's Dollar Scarcity Sparks Economic Worries

Kenya's commercial banks are running out of US dollars, causing difficulties for manufacturers and importers who rely on the currency.
Banks have imposed a daily cap on dollar purchases of as little as $5,000, forcing firms to seek dollars from multiple lenders and creating a parallel shadowy market.
The shortage of dollars is worsening despite earlier comments that it was temporary, and analysts are blaming the Central Bank of Kenya for introducing tough rules on the foreign exchange interbank market.

Kenya's commercial banks are facing a critical shortage of US dollars, resulting in some Kenyan firms turning to neighbouring countries, particularly Tanzania, to source the currency. This shortage of dollars is having a significant impact on the country's manufacturers and importers, making it difficult for them to meet their obligations. In response to this, the Central Bank of Kenya (CBK) has directed commercial banks to ration dollars to protect reserves.

According to multiple reports, the scarcity of dollars is worsening, despite earlier assurances from the banking lobby that it was temporary due to strong demand from companies remitting dividends and manufacturers importing components. The CBK has been blamed for the dollar crisis, with analysts citing its tough rules on the foreign exchange interbank market, which have crippled market operations.

This dollar crisis is having a considerable impact on Kenya's economy, as it is affecting the ability of businesses to meet their obligations to overseas suppliers in a timely manner. The industrialists' lobby has warned that the dollar crunch has strained relations with suppliers at a time when competition for raw materials has intensified globally amid lingering supply chain constraints.

The shortage of US dollars is also affecting Kenya's ability to compete in the global market, as firms are forced to buy forex at higher rates, reducing their ability to negotiate favourable prices. Analysts have warned that this situation could discourage foreign direct investment (FDI), encourage rent-seeking and reduce the interbank FX market. The situation is compounded by the weakening of the shilling against the dollar, which means it costs companies a lot more to buy forex.

Analysts have urged CBK to take urgent action to address this dollar crisis by working with commercial banks to increase the supply of US dollars in the country. The CBK must also consider reviewing its tough rules on the foreign exchange interbank market to ensure that market operations are not crippled. This will help to ensure that Kenya's economy remains competitive and that the country continues to attract foreign investment.

The situation is worrying for businesses in Kenya, but with the right actions, it can be addressed, and the economy can continue to grow.