Businesses in Kenya have been facing a hard economic period following an impact led by shortage of dollars in the country. Dollar shortage has highly impacted companies that trade with other companies outside Kenya which receive their payments in form of Dollars.
In a case of the shortage of Dollars, it becomes quite challenging to do business as you are unable to pay for the services and the raw materials you may require. With this, let’s have a quick detailed view on the shortage of dollars in Kenya and what causes a shortage in dollars.
Shortage of Dollars in Kenya Explained
In better part of 2022, Kenya saw a rise of manufacturing companies temporarily closing up their operations with most of these companies indicating a hard economic time. With this, most Kenyans wonder how there can be a shortage in dollars in Kenya.
Here we give you the full explanation you need.
Shortage in Dollars usually occurs whenever a country spends Dollars at a high rate on Imports in comparison to the Dollars used on exports. The main attribute to comparison with the US Dollar is due to its global usage in which it is used in pricing goods for international trade transactions.
Note that the USD is mainly used as it is deemed to be the most stable currency hence making it to be the main currency used in international trade transactions
A shortage in dollars in any country can limit the ability of a country in growing and trading effectively as it might affect imports for the manufacturing companies which need the currency to purchase and import their raw materials.
Causes of Dollar Shortage in Kenya
Before we check out on the actual cause of dollar shortage in Kenya, let’s closely look at the causes of dollar shortage in any country.
Some of the causes of dollar shortage include the following;
- Sanctions Imposed on a Country – When a country is isolated from other countries, such as through sanctions, there are high possibilities of dollar shortage.
- Political Environment – Availability of the dollar is balanced through imports and exports. Political issues could affect the international trade and hence reduce the demand for exports hence reducing the exchange for dollars.
- Exchange Rates Fluctuations – This is caused by instability in the local currency which makes it challenging and unpredictable on the next equivalent amount of Dollar would be made. This, therefore, discourages exports hence reducing the Dollar in the local country
- Currency Depreciation – Where there is a high depreciation on the currency, there is a high probability of dollar shortage as it leads to panic buying of forex reducing the dollar availability to be used in imports by manufacturing countries.
Kenya’s Main Cause of Dollar Shortage
The main cause in dollar shortage in Kenya is the fluctuations in the exchange rates which has seen Kenya’s currency weaken within a short period of time.
The Kenya Bankers Association blamed the dollar shortage situation on increased demand for dollars in the market as firms remit dividends and satisfy their foreign supplier obligations following the robust post-Covid–19 rebound.
This has led to increased forex buying panic and hence reducing the dollar in circulation in the market. The depreciation in the shilling has been prevalent hence becoming unstable with the shilling depreciating by 2.1% in 2022.
The Average current exchange for Kenya Shilling against US dollar is 115.90.
