Current account deficit widens as tourism slump hits inflows

Kenya’s current account position weakened in May due to a drop in inflows from travel and tourism amid a rise in import expenditure.

The Central Bank of Kenya (CBK) said the current account deficit — which measures inflows and outflows of hard currency —widened to 5.5 percent of gross domestic product (GDP) in the 12 months to May compared to 5.2 percent of GDP in the corresponding period last year.

The CBK said international travel and tourism inflows remained subdued since last year as arrivals are lower by more than 70 percent compared to the pre-pandemic period.

On the other hand, import expenditure, especially on capital goods has continued to rebound after the reopening of firms and industries, but exports recorded a slower recovery.

“The higher deficit was attributed to lower service receipts, which more than offset the increased receipts from exports and remittances,” said the CBK.

Remittance inflows in the 12-months to May 2021 increased by 19.5 percent to $3.37 billion (Sh363.4 billion) from $2.82 billion (Sh304.1 billion) in the year to May 2020. The deficit has been increasing since February when it was recorded at 4.6 percent, 5.1 per cent in March and 5.2 percent in April.

This has been attributed to a rebound in import outflows — which are an indicator that businesses and individuals are regaining their footing and therefore ramping up good orders from overseas markets.

Data from the CBK shows the import bill grew by 22.5 percent to Sh669.4 billion in the first four months of the year, driven largely by commercial goods.

This jump in imports helped widen the trade deficit to Sh420 billion, given exports receipt in the period grew at a slower pace of 12.2 percent to Sh248 billion, compared to the Sh221.9 billion earned over a similar period last year.