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Current account deficit widens on rising imports


Central Bank of Kenya. FILE PHOTO | NMG

Kenya’s current account deficit widened marginally as imports grew at a faster pace compared to export earnings in the first four months of the year.

Data from the Central Bank of Kenya (CBK) shows the deficit, measured as a percentage of the gross domestic product, stood at 5.2 percent in the 12 months to April, up from 5.1 per cent in March.

The current account measures the balance between the country’s foreign exchange inflows and outflows — registering as a deficit when outflows exceed inflows.

The inflows come in the form of export earnings, diaspora remittances and investment inflows, while import costs and government’s external payments constitute the bulk of outflows.

The CBK data shows that although exports grew by 5.5 percent in the period, and diaspora remittances were up 23.3 percent higher compared to 2020, the big jump in the import bill has meant that the deficit has widened by 40 basis points since December.

The imports have been driven by higher demand for consumer goods and supplies used by the manufacturing sector.

“Imports of goods increased by 15.2 percent in the first four months of 2021 compared to a similar period in 2020, largely as a result of improvements in imports of intermediate goods,” said CBK in a release after the May Monetary Policy Committee meeting.

“Receipts from services exports remained subdued, mainly due to weaknesses in international travel and transport.”

The CBK said however that it expects the deficit to remain stable for the rest of the year, projecting it at 5.2 percent for 2021.

The dip in 2020, when it went down to 4.8 percent from 5.8 percent in 2019, was largely due to a lower import bill as the economy adjusted to the hardships wrought by the Covid-19 pandemic.

A lower fuel import bill also helped as crude prices went down steeply in the early months of the pandemic on falling demand as economies locked down to control the spread of the disease.

Fuel prices have since rebounded, but the CBK has pointed out that this is not the main driver of the rise in Kenya’s import bill, but instead it is demand for goods for both domestic and factory use.