In recent years, the Kenyan shilling has taken economists and investors by surprise. After going through a difficult period, which culminated in early 2024 with the exchange rate exceeding 160 shillings to the dollar, the national currency has regained ground, stabilising at around 129 shillings to the dollar, and has also recovered slightly against the euro, falling back below the 150 mark. Analysts now believe it may strengthen slightly further.

The main reason is apparently simple: more and more dollars are flowing into the country.

Remittances from emigrants are worth more than tourism

Every month, hundreds of thousands of Kenyans living in the United States, Europe, the United Kingdom and, above all, the Gulf states send money to their families. This is now a structural phenomenon that represents one of Kenya’s major sources of foreign currency, having long since surpassed even tourism revenues. In recent months, remittances have reached record levels, providing a steady inflow of dollars into the national banking system. When the supply of US dollars increases and demand remains relatively stable, the natural result is a strengthening of the shilling.

What happens when more dollars arrive

The mechanism is the same as in any market.

A Kenyan worker living in London, Dubai or Minneapolis sends $1,000 to their family. Those dollars are converted into shillings by local banks or financial operators. If thousands of people carry out the same transaction every day, the system ends up with a greater supply of US currency. The more dollars in circulation, the less the dollar tends to appreciate and the stronger the local currency becomes.

Not just the diaspora

Remittances, however, account for only part of the phenomenon.

The monetary policy of the Central Bank of Kenya has also contributed to the shilling’s stability. Over the past two years, the Central Bank of Kenya has rebuilt substantial foreign exchange reserves, sufficient to cover more than six months’ worth of imports, thereby boosting the confidence of international investors.

Furthermore, the government has managed to ease tensions on international debt markets compared with the most critical period of 2023–2024, when country risk had prompted many market participants to sell shillings.

Good news… but not for everyone

A stronger shilling has obvious advantages.

Kenya imports oil, medicines, machinery and most of its industrial raw materials, paying for them in dollars. If the exchange rate improves, these imports cost less, helping to keep inflation and consumer prices in check.

Servicing the external debt also becomes relatively less burdensome.

However, there is also a downside.

Exporters of tea, coffee, flowers and vegetables, who receive payment in dollars but incur most of their costs in shillings, are seeing their margins shrink slightly. The same applies to tour operators: for an American visitor, a holiday in Kenya becomes slightly more expensive than when the dollar was very strong, and the United States is Kenya’s largest ‘exporter’ of tourists, mainly due to luxury safaris.

Stability remains the goal

Economists do not foresee a sharp rise in the shilling. Rather, they expect a moderate trend towards appreciation or, more likely, the maintenance of the current stability around today’s levels.

Much will depend on the performance of the global economy, the price of oil, developments in the conflicts in the Middle East — which could affect both remittances from the Gulf and the cost of energy imports — and Kenya’s ability to continue attracting foreign currency through investment, exports, tourism and the diaspora.

For the time being, however, the message from the markets is clear: after years of high volatility, the Kenyan shilling has gone from being a cause for concern to one of the main strengths of the national economy.