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This feature on Sri Lanka, its forex crisis and how Kenya could end up in the same situation was first written and published by economist Ephraim Njega: Sri Lanka has been facing a forex crisis which has led to the government banning the importation of non-essential and non-urgent goods.
Some of the items banned include luxury goods, car imports, tumeric – a staple in local curries, tiles, toilets, tyres, cosmetics, vehicle spare parts, electronics and electrical appliances.
Recently it banned importation of fertilizers and agrochemicals. This has been relaxed after public outcry.
All these manoeuvres were to preserve forex in view of rising external debt settlement obligations.
We are likely to experience such in Kenya soon as our public debt continues to rise. Our external portion of the public debt is now at US$ 37 Billion (KShs 4 trillion).
A slight depreciation of the shilling will have serious implications on the public debt situation. For instance, if the shilling depreciates by KShs 10 to the dollar our debt will rise by KShs 370 billion without us borrowing an extra shilling.
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Paying interest and principal on the external debt will continue to gobble up forex at a faster rate than we can replenish. This will also make it harder to refinance the external repayments.
The government needs to start finding ways of limiting our imports and increasing our sources and volumes of forex. It is better to act early than wait till the crisis matures. Unnecessary forex leakages should be minimized.
