Kenya’s current account deficit to GDP for 2022 has come in nearly a percentage point lower than earlier projected by the Central Bank of Kenya (CBK) following a better than expected performance of export earnings and higher diaspora inflows in the last quarter of the year.
The CBK said last week that the deficit, which measures the difference between a country’s forex inflows and outflows, was estimated at 4.9 percent at the end of December 2022.
As late as November, the monetary regulator was projecting the deficit at 5.6 percent.
The current account deficit stood at 5.4 percent in 2021, having gone up from 4.6 percent in 2020.
“This turnaround in the current account (projection) relates to some of the exports that we saw towards the end of the year, and is a good outcome. Our sweet spot in the current account is a deficit of about five percent and we expect that it will remain around there at 5.4 percent in 2023,” said CBK governor Patrick Njoroge in a briefing last week.
“This also means that the foreign exchange market will have greater stability.”
New data from the CBK shows that tea export earnings and diaspora inflows provided the strongest support to the country’s foreign exchange account, compensating for a decline in horticulture export earnings last year.Inflows from tea sales rose by 16.1 percent to $1.38 billion (Sh172 billion) in the period, while diaspora remittances were up 8.3 percent to a record high of $4.03 billion (Sh502 billion).
On the import side, fuel continued to be a major drain on the country’s foreign exchange holdings, but machinery and transport goods purchase costs fell as backlogs in international supply chains eased, lowering shipping costs.
Oil import costs rose by 60 percent last year to $5.57 billion (Sh694 billion), while machinery imports fell by 19 percent to $3.77 billion (Sh470 billion).
The prevailing cost of crude is a major factor in determining the direction of the current account, given that petroleum products account for about 18 percent of the country’s total import bill.
A lower current account deficit—which indicates lower net outflows— has positive implications for the shilling in the forex market.
The local unit has been under sustained pressure for the last two years, weakening to a new low of 124.60 units to the dollar by the close of trading last week.
Part of the downward pressure has been brought by the higher import bill, which has led to importers complaining of occasional difficulties when trying to access dollars.
Globally, the dollar has strengthened against almost all currencies, owing to high inflation that has seen the US raise its rates, thus sucking capital into the world’s largest economy.