Due to shortage of US dollars, it is challenging for manufacturers and importers of common items to meet their obligations. Finally, after a shortage of dollars and a rush to conserve reserves, the Central Bank of Kenya (CBK) ordered commercial banks to restrict the number of dollars they could issue.
Many currency traders and importers claim that banks have placed a daily limit on dollar purchases of less than $5,000 because businesses find it difficult to obtain enough foreign currency to meet their supply needs. Due to the shortage, industrialists are forced to seek dollars from multiple lenders every day to meet their monthly hard currency demands. This makes it more difficult for them to maintain good supplier relationships and bargain for favorable rates in the spot markets.
Banks, especially large institutions, are running out of dollars, worsening currency problems that began in the middle of last year with lenders rationing limited dollars.
“We are now waving for the dollar. Of the six banks we call every day for dollars, only half have anything for us. Three banks ask us to verify later. said a top executive at a manufacturing firm who sought anonymity for fear of reprisals from the Central Bank of Kenya (CBK).
“What is available in banks is between $5,000 and $10,000. One is lucky to get $20,000 and one is lucky to get $50,000 from the same bank. This is crazy for a business that needs $1 million monthly for supplies and we are getting every dollar at Sh137. he added.
Importers claim they are forced to buy dollars at Sh137 or more because they cannot access them at the official buying rate of Sh127.39.
Major companies have started trading dollars among themselves, and those in need of hard cash are showing interest in hotels and airlines. It is breaking the law and fostering a parallel dark market that can lead to several economic problems, such as deterring foreign direct investment (FDI), promoting rent-seeking and shrinking the interbank FX market.
Some lenders agreed to dollar purchase caps but chose not to announce it publicly for fear of retaliation from the CBK. Industry leaders claim that their limited access to sufficient hard currency has significantly affected their ability to make timely payments to foreign suppliers.
The industrialists’ body claimed that the dollar crisis has damaged relations with suppliers at a time of increasing global competition for raw materials as a result of rising demand and persistent supply chain constraints.
The deficit is caused by an increase in exports of raw materials and equipment after the economy recovers, which increases demand for dollars.