Balance of payments boost cuts the shilling’s exposure to shocks
A worker at a flower farm. The horticulture sector recorded heavy earnings. PHOTO | FILE
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The risk of major shocks on the shilling has reduced as Kenya’s overall balance of payments – comprising the current, capital and financial accounts – deficit improved by 7.2 per cent in the third quarter.
A lower current account deficit is a boon for the local currency, which has stabilised at about 102 units to the US dollar in the past two months. The currency had weakened to 106 to the greenback in early September before beginning to recover.
Francis Mwangi, head of research at Standard Investment Bank (SIB), said the changes in the balance of payments and the current account were a result of the inflows from tea and horticulture that normally perform well in the second and third quarter of the year.
The risk of major shocks on the shilling has reduced as Kenya’s overall balance of payments – comprising the current, capital and financial accounts – deficit improved by 7.2 per cent in the third quarter.
The improvement was a result of higher value of exports against a lower value of imports, the Kenya National Bureau of Statistics (KNBS) showed in the third quarter data covering July to September.
The largest change in the balance of payment was in the current account where the deficit fell by a significant 25.7 per cent to Sh112.4 billion compared with Sh151.2 billion in the quarter that ended in June.
The account, whose value indicates the value of exports against imports, has for many years been in the negative. In the period July to September, the overall balance stood at Sh51.36 billion, up from Sh47.89 billion recorded in the period between April and June, the KNBS data shows.
However relative to the same period last year, the overall balance deficit fell from Sh76.8 billion to Sh51.36 billion amounting to a 33-per cent decline.
“The current account balance narrowed…This was mainly on account of increase in the value of exports against a decline in the import bill,” said the KNBS in a statement.
A lower current account deficit is a boon for the local currency, which has stabilised at about 102 units to the US dollar in the past two months. The currency had weakened to 106 to the greenback in early September before beginning to recover.
Francis Mwangi, head of research at Standard Investment Bank (SIB), said the changes in the balance of payments and the current account were a result of the inflows from tea and horticulture that normally perform well in the second and third quarter of the year.
“We have experienced heavy inflows from tea and horticulture exports. They tend to come in the second and third quarter of the year. Similarly the imports of capital goods, including by Kenya Airways, for infrastructure project have reduced in the third quarter. That is the reason the current account deficit has fallen,” said Mr Mwangi.
Besides food-related exports, the KNBS said the value of exports of live animals, manufactured goods and crude oil materials (re-exports) also rose.
The capital account, which shows the amount of the major capital movements including foreign direct investment (FDI) coming into Kenya, indicated there was hardly any activity in the third quarter of the year as was the case in the second quarter. The first quarter had Sh2.5 billion inflows, which was an increase from the Sh576 million recorded in the quarter that ended in December 2014.
The financial account, which shows the net of inflows, bank loans and portfolios flows into the equities and fixed-income markets, showed improvement from a deficit of Sh214.5 billion to Sh157.6 billion. This was a decline of 26.5 per cent.
The net errors and omissions, which represent the inflows that cannot be explained were in the negative showing that they had turned into outflows – which could not again be explained.
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