Current account deficit widens on import costs

The Central bank of Kenya, Nairobi on Sunday, November 22, 2020. PHOTO | DENNIS ONSONGO | NMG

Kenya’s current account deficit as a percentage of GDP widened to 5.1 percent in April from 4.8 percent a year earlier, due to higher import costs for fuel, food and industrial goods that outweighed higher inflows from agriculture exports and diaspora remittances.

The ongoing conflict between Russia and Ukraine has pushed up costs of key food items such as wheat, and also caused a jump in the price of crude oil in the international market.

Oil prices, which had fallen to decades lows of $19 per barrel at the height of the Covid-19 pandemic in 2020, have now gone up to $120.

Constraints in the global supply system due to pent-up demand after the easing of Covid restrictions have also increased the cost of importing goods significantly.

“The wider deficit reflects a higher import bill, particularly for oil, which more than offset increased receipts from agricultural and services exports, and remittances,” said the Central Bank of Kenya (CBK) in a market bulletin.

The current account measures the difference between a country’s forex inflows and outflows, falling into deficit when outflows are higher.

In the 12-months to March 2022, latest CBK data shows, Kenya imported goods worth Sh2.23 trillion, against export earnings of Sh789 billion, thus recording a trade deficit of Sh1.44 trillion.

In the year ending March 2021, the deficit had stood at Sh1.07 trillion, arising from imports worth Sh1.72 trillion versus exports of Sh652.5 billion.

The widening of the deficit reflects the recovery in domestic demand after the lifting of Covid restrictions, as well as the reopening of international trade.

It has defied higher diaspora inflows into the country in the period. CBK data shows that Kenyans living abroad remitted a total of $3.97 billion (Sh463.3 billion) in the 12 months to April 2022, an increase of 20 percent from the $3.31 billion (386.3 billion) they sent in the corresponding period of 2020.

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