How Kenya's trade deficit hit a record Sh666bn in first five months of 2022

Central Bank of Kenya. FILE PHOTO | NMG

Costly imports of fuel, edible oils and fertiliser widened Kenya’s trade deficit to a record Sh666.2 billion in the first five months of the year, piling pressure on the shilling and straining household budgets due to rising inflation.

The 23 percent or Sh189 billion jump in the import bill to Sh1.02 trillion is largely a result of the ongoing Russia-Ukraine conflict, which has disrupted global supply chains of critical commodities such as petroleum fuels, metals, fertiliser and grains.

The invasion of Ukraine that began on February 24 led to shipping lines boycotting Russia, while subsequent sanctions piled pressure on the country’s market.

Data from the Central Bank of Kenya (CBK) shows that this growth in imports has significantly outstripped that of export earnings, which in the period grew by Sh41 billion to Sh354 billion.

The cost of petroleum imports jumped by 90 percent to Sh258.7 billion, surpassing expenditure on machinery, transport equipment and manufactured goods.

The cost of crude oil jumped to $123 per barrel after the conflict started, holding above the $100 mark for the better part of the year.

Expenditure on chemicals/fertilisers increased by Sh22.5 billion or 16 percent to Sh162 billion, while that of edible oils rose by Sh20 billion to Sh62 billion.

The edible oil price surge was largely due to Malaysia— the leading producer of palm oil— curbing exports on fears of local shortage after sunflower oil exports from Ukraine dried up due to the conflict. The two products are the primary and complimentary used edible oils globally.

The ballooning trade deficit is eating into the country’s foreign reserves, which are critical in supporting the stability of the currency.

In addition to the supply disruptions caused by the conflict, the shilling has also felt the heat of higher dollar demand and is now trading at an all-time low against the greenback.

Importers require more shillings to acquire dollars to pay their suppliers, resulting in imported inflation.

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Note: The results are not exact but very close to the actual.