Capital Markets

Kenya’s current account deficit narrows to 5.1pc

cbk

The Central bank of Kenya, Nairobi on Wednesday, December 30, 2020. PHOTO | DENNIS ONSONGO | NMG

Kenya’s current account deficit narrowed to 5.1 percent in the 12 months to July from 5.3 percent in May, helped by lower oil import costs coupled with improved inflows from tourism and diaspora remittances.

The deficit has tended upwards in recent months due to an elevated import bill — due to high crude and food grain prices —but the fall in the price of Murban Crude from $118 per barrel at the beginning of July to $105 at the end of the month helped ease the pressure on the country’s forex.

Central Bank of Kenya (CBK) data also shows that diaspora remittances so far this year are 13 percent higher compared to last year, boosting the current account.

“The narrower deficit reflects improved receipts from service exports and remittances,” said the CBK in its weekly markets bulletin.

Cumulative diaspora remittances in the first seven months of this year stood at $2.36 billion (Sh284.5 billion), up from $2.09 billion (Sh251 billion) in a similar period last year, this despite month-on-month inflows falling since March this year.

The current account measures the difference between a country’s forex inflows and outflows, falling into deficit when outflows are higher. Kenya is a net importer of goods, both consumer and capital goods for industry, hence the current account remaining in deficit.

Imports have outpaced exports in terms of growth this year, largely due to a release of pent-up demand that had built up when the country imposed restrictions in 2020 and 2021 to control the spread of the Covid-19 virus.

Kenya’s trade deficit for the first six months of the year widened by nearly a quarter, hitting Sh814.02 billion from Sh620.82 billion in the corresponding period in 2021.

Global shipping prices and the cost of goods have also gone up, adding to the total cost of bringing imports into the country.

The Russia-Ukraine war has been the primary factor behind the rise in crude and food prices, with the two countries being major grain exporters and Russia the world’s third-largest oil producer.

A narrowing of the current account—which indicates that dollar demand is abating—would prove a timely boost to the shilling, which is trading at all-time lows of 120.35 to the greenback.

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