Kenya’s current account deficit ended 2021 above the central bank’s projection on the back of higher than anticipated oil prices, defying record diaspora emittances and higher earnings from tourism and horticulture exports.
The deficit stood at 5.4 percent of gross domestic product (GDP) for the year, preliminary data from the Central Bank of Kenya (CBK) shows, against an earlier projection of 5.2 percent. The deficit stood at 4.6 percent in 2020.
The current account measures the difference between a country’s forex inflows and outflows, falling into deficit when outflows are higher.
Higher imports of industrial and consumer goods also strained the country’s forex flows as the economy reopened and pent-up demand raised external purchases.
“We had projected 5.2 percent … the difference is due to the forecast error in oil import side,” said CBK governor Patrick Njoroge in a post-monetary policy committee (MPC) briefing.
“The sweet spot for the current account (deficit) is five percent. This portends to stability and well behaved forex market going forward.”
Oil prices, which had fallen to record lows at the height of the Covid-19 pandemic in 2020, recovered sharply last year, with Brent crude going up by 67 percent from $46.73 to $77.94 per barrel between January and December.
As a result, the cost of Kenya’s petroleum imports rose by 50 percent to Sh222.5 billion ($1.96 billion).
The rise in oil prices has continued into 2022, with the Brent price yesterday hitting the $90 mark for the first time since 2014 due to uncertainty on the standoff between Russia and the West over Ukraine.
This higher price means that Kenya is set to face a higher petroleum import bill in the short term, risking further widening of the current account deficit.
Imports of other goods are also outpacing export earnings, particularly intermediate goods whose expenditure rose by 27.8 percent to Sh1.2 trillion ($10.7 billion) in 2021.
On the export side, tea earnings declined by 2.7 percent to Sh135.4 billion ($1.19 billion) last year, blunting the 18.8 percent rise in horticulture earnings to Sh128.1 billion ($1.13 billion).
On the plus side for the current account, diaspora remittances rose by a fifth to hit a record Sh422 billion ($3.72 billion) last year, while tourism earnings also rallied, jumping by 65 percent to Sh146.51 billion.
The tourism sector is among those that continued to recover from the major shocks in the early months of the pandemic, benefitting from easing of travel restrictions in Kenya and globally.