Capital Markets

Current account deficit narrows on lower oil import bill

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Summary

  • The current account, recording the net of inflows from trade, investments and external payments, improved from a deficit of 4.9 percent recorded in October.
  • The figure represents a recovery in the country's inflows that were expected to worsen due to the shocks on trade, oil prices, tourism and remittances.
  • In the monetary committee policy held on November 26, CBK projected the current account deficit at 5.1 percent of GDP in 2020 from 5.8 percent recorded in 2019.

Kenya’s current account deficit narrowed to 4.7 percent of gross domestic product (GDP) in the 12 months to November 2020, attributed to savings from oil imports and resilient earnings from exports and remittances.

The current account, recording the net of inflows from trade, investments and external payments, improved from a deficit of 4.9 percent recorded in October.

The figure represents a recovery in the country's inflows that were expected to worsen due to the shocks on trade, oil prices, tourism and remittances.

In the monetary committee policy held on November 26, CBK projected the current account deficit at 5.1 percent of GDP in 2020 from 5.8 percent recorded in 2019.

“Provisional data on the balance of payments shows that the current account deficit narrowed to 4.7 percent of GDP in the year to November 2020 compared to 5.4 percent of GDP in the year to November 2019,” Central Bank of Kenya (CBK) said in its weekly bulletin.

The country has seen a collapse in international tourism translating to lower travel income and low hotel payments due to low occupancy rates.

Remittances have, however helped lessen this dip in tourism foreign exchange inflows , which would have led to a widening of the current account deficit. The cumulative diaspora remittance inflows in the 12 months to November 2020 totalled Sh333.28billion ($3.045 billion) compared to Sh281.79 billion ($2.790 billion) in the 12 months to November 2019.

The narrowing of the deficit is also supported by exports earnings that strengthened from earlier disruptions in global demand and supply lines due to Covid-19. 

Total exports grew 6.4 percent to Sh532.91 billion in the January to October period from Sh500.79 billion in the corresponding period in 2019.
Coffee and tea receipts increased 3.9 percent and 17.2 percent to Sh19.71 billion and 109.36 billion, respectively over the period, reflecting increased output.
“Horticulture exports have rebounded, reflecting the normalisation of demand in the international market, and the availability of adequate cargo space,” CBK Governor Patrick Njoroge said in November.