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The People Monday Date: 27.04.2015 Page 11 Article size: 124 cm2 ColumnCM: 27.55 AVE: 34775.11 How strong dollar adversely affects Kenyan economy The dollar has relentlessly continued to strengthen against other currencies and the Kenyan shilling has not been an exception. And now questions abound on the effects of a strong US dollar on the economy. There are always two sides of a coin, but ultimately, there is always a winner and a loser in any game. A strong dollar has both positive and negative effects, thus Kenya's economy has to brace itself for both. First, the dollar is strengthening on the backdrop of weakening shilling because of low demand for shillingbacked investments—this has a domino effect. As the dollar rises, Kenyan debt becomes more expensive to service in local currency. And as the Fed starts to tighten, the interest rates charged on dollar debts—whether in bond markets or via banks—will rise in tandem. inflationary pressure on the economy—which may counter the deflationary power of low oil prices. On the positive side, a rising dollar is cutting import prices in general, which should help hold inflation in check. In addition, as is often the case, oil prices seem to be reacting more than would seem logical to the dollar movement. This has to do more with the politics being played especially between the US and Russia. Secondly, as much as borrowers in emerging markets may come under pressure to service their debts, market exporters will benefit from a falling currency. Unfortunately, things are not so neat. Although most emergingmarket firms that borrow in foreign currency do so in dollars, exporters may trade As a result, borrowers are at not with America, but with other risk of a dual disadvantage: a strengthening dollar and a rising cost of borrowing and refinancing. That does not necessarily mean a wave of bankruptcies, but it does mean another drag on growth countries whose currencies are at a time when economies like Kenya are already struggling. Additionally, some imports will become more expensive for Kenya, which is largely an import economy, thereby placing upward also depreciating against the dollar. Thus the strengthening dollar can add to emerging economies' debt burden without helping their exports. At the close of the day, a strong US dollar has much negative effect to the economy of the country. The writer is a tax consultant—aNKuria Ipsos Kenya Acorn House,97 James Gichuru Road Lavington Nairobi Kenya