Widening trade deficit puts Kenya shilling stability to test
The gap between Kenya’s import basket and exports widened by Sh41.6 billion in the first quarter of 2013, putting stability of the shilling to test. FILE
What you need to know:
Total current account deficit worsened by 51.3 per cent to Sh122.7 billion in the first quarter from a deficit of Sh81.1 billion in the same quarter last year, mainly due to a bigger gap between imports and exports.
The gap between Kenya’s import basket and exports widened by Sh41.6 billion in the first quarter of this year, putting stability of the shilling to test.
A report by the Kenya National Bureau of Statistics (KNBS) shows the total current account deficit worsened by 51.3 per cent to Sh122.7 billion in the first quarter from a deficit of Sh81.1 billion in the same quarter last year, mainly due to a bigger gap between imports and exports.
At over 10 per cent of the gross domestic product, the deficit has continued to keep the pressure on the shilling, whose average exchange rate stood at 86.20 units to the dollar Thursday. In the first four months of the year the shilling was largely at 83 to 85 units level to the greenback.
The widening gap also poses a huge challenge for policy makers, both at the Treasury and Planning ministries, in terms of discouraging unnecessary imports and encouraging exports through taxes and policy measures that would improve the general competitiveness of the economy against international rivals.
“The deterioration of current account balance was as a result of faster growth in the merchandise import bill by 8.4 per cent compared to a marginal increase of 0.9 per cent in the total export earnings,” said KNBS in a statement.
The deficit on merchandise trade between Kenya and other countries stood at Sh224 billion, compared to Sh197.6 billion in the same quarter last year amounting to a deterioration by Sh26.4 billion.
“The value of imports amounted to Sh356 billion in the first quarter of 2013, up from Sh328 billion recorded in the corresponding period of 2012. This was mainly occasioned by increased imports of transport equipment,” said KNBS.
The Treasury Cabinet secretary Henry Rotich has proposed to impose a 1.5 per cent tax on all imports, though the question remains as to whether this will be enough to stem the rising tide of foreign goods.
In his Budget statement, Mr Rotich also spelled out measures that would reduce food imports by setting aside cash for irrigation.
Other measures were construction of a standard gauge railway that should reduce the transport costs for business and make Kenya’s exports more competitive globally.
It is also expected that the Ministry of Devolution and Planning, which is currently in the middle of formulating the second Medium-Term Plan 2013-17, will outline measures intended to make specific economic sectors more competitive in a bid to increase exports in the long term.
“We have to close the gap between exports and imports. This means incentives for exporters. The most important thing here is to look at improving trade,” said Stephen Wainaina, the economic planning secretary at the Ministry of Devolution and Planning.
