NAIROBI, Kenya
Uganda and Tanzania currencies are the best performing media of exchange in East Africa against the dollar, whereas Kenyan and Rwandan currencies continue to lose value against the greenback.
According
to Bloomberg Refinitiv data, the Uganda shilling continues to hold steady
against the dollar followed by the Tanzanian currency at 2.45 percent and 0.76
percent, respectively. They are among six African currencies with a positive
outlook with the kwacha remaining best performing by end of November,
appreciating at 19.64 percent followed by Mozambique’s metical and Angola’s
kwanza at second and third respectively.
The
Kenya shilling and Rwanda franc were ranked 11th and 12th among top African
currencies depreciating at -2.93 percent and -3.48 percent respectively.
Currency
policy in most of Africa is characterised as flexible without pegging the
currency rate against the dollar.
The
Uganda shilling is projected to remain strong to the end of 2021, buoyed by
dollar inflows from coffee exports and foreign investors chasing yields.
Uganda
is Africa’s biggest coffee exporter and shipments climbed to a record level in
June on better yield from new trees, favourable weather and improved prices,
according to the Uganda Coffee Development Authority.
The
pandemic has hurt economic output from the net importer but the country remains
optimistic the dollar will continue to appreciate post-Covid.
“In
2021 and beyond, the shilling could benefit from a projected dollar
depreciation against other reserve currencies. Moreover, the outlook for a
post-pandemic rebound in global growth and trade in 2021 and the reduced odds
of unpredictable trade wars should lead to a reduction in exchange rate
volatility," said Dr Adam Mugume, executive director of research Bank of
Uganda.
Mid
November, the IMF differed with Kampala, terming the Uganda currency overvalued
and urged the authorities to only intervene in moments of “extreme” market
distress.
Given
uncertainties linked to the pandemic and recent appreciation of the exchange
rate, Uganda’s planned fiscal consolidation will help to narrow the
current-account deficit. The gap widened to $1.28 billion in the second quarter
from a deficit of $702.3 million in the previous three months.
The
IMF will visit Uganda this month to evaluate the “reform agenda” and discuss
the next tranche of a three-year $1 billion loan. Uganda received $258 million
when the loan was approved in June.
In
Tanzania, the shilling has continued to gain ground against the dollar in the
past few weeks from a steady flow of the greenback from tourism, exports and
funds from development partners.
The
BoT predicts that the shilling will remain stable in coming months.
The
BoT’s latest Monthly Economic Review says Tanzania earned $2.941 billion from
gold exports during the year to August 2021, a significant improvement from the
$2.735 billion during the same period last year.
Tanzania’s
also recorded a 33.2 percent rise in exports of manufactured goods to $1.125
billion in the year to August 31.
In
Kenya, the shilling dropped to a new historic low on December 1 where it traded
at Ksh112.83 against the dollar.
The
shilling, which opened the year at Ksh107.23, has been losing ground against
major world currencies despite numerous support by the CBK to iron out
volatility.
Analysts
say the shilling, just like other currencies, is feeling the heat of global
inflation, with economies like the US and UK experiencing the worst cost of
living in almost two decades.
The
US inflation rate rose to a 13-year high in September as rising costs for food
and shelter pushed the rate up to 5.4 per cent. In the UK, annual inflation
accelerated to its fastest rate in a decade, hitting 4.2 per cent last month.
This
week, the Kenya National Bureau of Statistics said the cost of living eased to
5.8 per cent in November on reduced cost of petroleum products.
Even
so, prices of household products like sugar, maize flour and cooking oil have risen
in recent days as importers pass high currency bills to consumers.
The
CBK had warned that the weak shilling will not only push up the cost of living
but also the debt servicing.
Even
so, CBK Governor Patrick Njoroge insists that the shilling is not out of line
with other currencies.
Njoroge
said while the shilling has shed three per cent of its value against dollar in
the year to date, the yen, the Swedish Krona and the euro have lost ground by
10.3, 9.0 and 7.9 per cent respectively.
“The
question of whether we have been out of line with other currencies does not
arise. Basically, it has to do with the strengthening of the dollar against
most currencies,” he added.
The
CBK states that it has held its policy on non-intervention in the foreign
exchange, only stepping in to stamp out volatility which would leave the
economy susceptible to instability.
Since
November 9, the shilling has consistently touched record lows against the
dollar, with Ksh112.38 of the local unit fetching one greenback at the close of
trading on November 26, as CBK data shows.
Banks
are selling the dollar at between Ksh114 and Ksh117 in a parallel market.
The
CBK documents show that the financial regulator has been in the market for the
past five months in a bid to stabilise the shilling. But this has had very
little effect.
In
Rwanda, the IMF mission, led by Haimanot Teferra has continued with visits to
discuss unprecedented policy support, robust remittances, efforts to step up
the vaccination rate, and progress in structural reforms is supporting economic
recovery in 2021. Growth is projected at 10.2 percent, from a sizable
contraction of 3.4 percent in 2020.
The
outlook is benefiting from positive spillovers from the global recovery.
Policies to attract private sector investment and manage climate change will
remain key for more durable, inclusive, and resilient growth.
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