Kenya’s balance of payments slips into deficit position

Kenya’s balance of payments has slipped into a deficit position following a drop in financial inflows, in the absence of the Eurobond and amidst low tourist numbers, wiping out gains of a lower import bill.

The country’s balance of payments, which represents all economic transactions between Kenyan and the rest of the world, had a deficit of Sh6 billion in the year to November down from a surplus of Sh87.2 billion a year earlier.

This means there were more outflows from the country than receipts.

Net outflow has a negative effect on the shilling, which lost 13 per cent to the dollar last year. “The decline reflects a 37.5 per cent decrease in the financial account surplus that more than offset the Sh8.4 billion increase in the capital account surplus,” said the Treasury in its budget policy statement.

Financial account reflects inflows from foreign direct inflows (FDI), investment portfolios and reserves from international funds.

“If you compare this with a year or so ago, some of the flow captured in that financial account include the sovereign bond which is not present this year. FDI may have dipped a little because of activity in the oil sector coming down,” Treasury secretary Henry Rotich told Business Daily.

Foreign investors withdrew Sh650 million from the Nairobi Securities Exchange last year, according to data from Standard Investment Bank.

The exits were attributed to the introduction of the capital gains tax and the anticipated and eventual increase of the US Federal Reserve rate which incentivised investors to seek safety in the American market.

“Because of what has happened in the US, the interest rate hike, some financial flows have not been high,” said Mr Rotich.

Remittances from Kenyans working abroad increased by 9.3 per cent last year to Sh154 billion though. Outflows from the country have been on the rise, incidentally as Kenyans increasingly buy properties abroad — with Dubai and London being preferred destinations — denting the net flow position.

Low earnings from the tourism sector also contributed to the negative cash flow position.

“The value of services declined in the period under review mainly due to the decline in the receipts from tourism and transport services,” said the Treasury.

Tourism sector has taken a hit due to concerns over terror attacks. In December the number of tourism arrivals went up for the first time in close to two years providing a ray of hope in the battered sector.

READ: Balala sees Kenya's tourism recovering in 2018

Transport services are mainly offered to users of the Mombasa port and northern corridor. The gap between cost of imports and exports narrowed following a lower import bill attributable to a slump in oil prices.

The current account deficit was at Sh400.3 billion in the year to November 2015 from a deficit of Sh500.8 billion a similar period a year earlier. Kenya is a net importer of goods.

“As a share to GDP, the current account deficit improved to 7.2 per cent in November 2015 from 10.7 per cent in November 2014 due to the decline in the import payments despite the declining export receipts,” said Treasury.

Central Bank of Kenya governor Patrick Njoroge has expressed hope that the balance of trade will improve further this year due to improved performance by tourism and agriculture.

“KQ will be exporting its two aircraft that it is selling this quarter. This is a positive in the balance of payment because it is an export. The price of oil is quite favourable and looks like something that will last,” said Dr Njoroge during a briefing last month where he predicted a stable shilling.

Moses Ikiara, the chief executive of Keninvest, points out that the deficit is not much of a concern assuming it is a one-off. “It would be a problem if it was persistent and wide but it can correct,” said Dr Ikiara.