Kenyans were warned by the Central Bank of Kenya (CBK) to prepare for an economic disaster.
The governor, Patrick Njoroge blamed the looming problem on rising interest rates in the US, which helped the dollar gain ground against other currencies in a statement posted on the CBK website on November 5.
Njoroge noted that the country might default on its loan due to the depreciating value of the Kenyan shilling which would be extremely detrimental to the economy.
The financing from the global capital markets has dried up for Emerging Markets and Developing Economies (EMDEs) and particularly for the frontier economies the governor wrote.
Further, with the resultant flight of capital to the safety of the US dollar financing from the global capital markets has dried up for EMDEs.
This has made it challenging for those nations to close their fiscal and external financial gaps, according to Njoroge.
Financial and insurance expert Nicholas Mutua explained to Kenyans.co.ke why the strength of the dollar devalues the Kenyan shilling.
The US dollar is the only recognised form of payment in international trade therefore when Kenya pays a high price for it our shilling loses value.
According to him Kenyans are currently paying between Ksh126 and Ksh130 for a dollar an increase from Ksh110 at the same time last year.
Kenya is a consumer nation thus the government and businesses spend more on imports now than they did in the past.
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