Capital Markets

Current account widens on higher importation bill

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Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

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Summary

  • The year-on-year expansion of the deficit is attributed to the base effect where last year oil prices had fallen to multi-year lows due to low demand.
  • CBK however projects that the current account deficit will close the year at 5.2 percent helped by the global economic recovery which is expected to boost export demand and remittance inflows.

Kenya’s current account deficit widened to 5.4 percent of GDP in the year to October from 4.8 percent a year earlier on the back of a bigger oil and industrial goods import bill.

The year-on-year expansion of the deficit is also attributed to the base effect where last year oil prices had fallen to multi-year lows due to low demand on Covid travel restrictions, while local factory activity had also been curtailed by the Covid prevention restrictions.

It has however eased slightly on a month-by-month basis, having stood at 5.6 percent in the 12 months to September 2021.

The Central Bank of Kenya (CBK) however projects that the current account deficit will close the year at 5.2 percent helped by the global economic recovery which is expected to boost export demand and remittance inflows.

“We are on track to close the year at 5.2 percent. This shows stability in the current account and support in the foreign exchange market,” CBK Governor Patrick Njoroge said during the monetary policy committee briefing on Tuesday.

While the reopening of the economy and international trade has boosted exports, their growth has lagged that of imports, which shot up on the back of have pent up demand for consumer goods in the economy.

Imports of goods increased by 23.6 percent in the 10 months to October compared to the corresponding period in 2020.

Import of intermediate goods including oil increased by 27.4 percent in the 10 month period to Sh1.09 trillion ($9.65 billion) relative to last year, while capital goods imports rose by 12 percent to Sh274.6 billion ($2.44 billion). Consumer goods jumped by 17.8 percent to Sh265.6 billion ($2.36 billion.)

Exports in the period rose by 10.8 percent, led by coffee, horticulture and manufactured goods.

The CBK also anticipates a recovery in international flows through travel and remittances to support the current account.

In the 12 months to October 2021, Kenyans living abroad sent home Sh405.8 billion ($3.605 billion), a 20 percent increase on the Sh338.4billion ($3.006 billion) they sent home in a similar period last year.

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