Kenya - Money

SAP-induced reforms in the first quarter of 1994 instituted a free- floating exchange rate policy in Kenya, with the value of the Kenyan shilling thereafter being determined by its supply and demand in international money markets. Prior to the reform, the Kenyan government followed a fixed exchange regime in which the shilling was pegged to the U.S. dollar at a specific rate, subject to alterations only to rectify substantial distortions. Since the introduction of the free-floating exchange regime, the shilling has generally depreciated in relation to the U.S. dollar, meaning it takes increasingly greater quantities of shillings to equal the value of 1 U.S. dollar. In 1995, the exchange rate was averaged at KSh51.430 per US$1, with the rate depreciating to an average of KSh70.326 per US$1 in 1999, and an average of KSh76.93 per US$1 in 2000. The EIU expects that the rate will average at KSh80 per US$1 in 2001, and KSh84 per US$1 in 2002. While

currency depreciation is positive for the exporting sectors of the Kenyan economy, since less foreign money is needed to buy Kenyan exports which thereby renders them more attractive, it has the adverse effect of increasing the prices of imports. For a drought-effected food-importing nation like Kenya, increases in the prices of essential imports can have negative consequences on the poorest segments of the society.