Current account gap at three-year high on rising oil pricesTuesday March 15 2022
Kenya’s current account deficit in the year through January widened to a three-year high on rising petroleum products costs which pushed up import bill at a faster rate than earnings from agricultural exports and diaspora remittances.
Data released by the Central Bank of Kenya Friday estimated the gap between the country’s foreign exchange outflows and inflows at 5.6 percent of gross domestic product (GDP) from 4.3 percent a year earlier.
That was the highest since 5.8 percent in 2019.
The deficit in January means the mismatch between the amounts Kenya spent on foreign payments for imports such as oil and industrial supplies, dividends, interest as well as services outstripped that which it received from abroad by an equivalent of 5.6 percent of the economic output.
“The wider deficit reflects a higher import bill, particularly oil, which more than offset increased receipts from agricultural and services exports and remittances,” CBK wrote in its weekly bulletin.
A widening current account deficit exerts pressure on the shilling as the demand for dollars remain elevated, outstripping that for Kenyan local currency.
A weaker shilling means importers spend more on bringing in goods such as petroleum products and raw materials for factories. This may result in price increases for consumers in a net import economy— imported inflation.
The country’s forex inflows are largely diaspora remittances, exports earnings from key produce such as horticulture and tea as well as tourist receipts.
Spiking oil import bill, which had fallen to multi-year lows at the height of the pandemic in 2020, is seen worsening Kenya’s trade terms further, exacerbated by sanctions on Russia for its invasion of Ukraine.
Analysts see the current account deficit surpassing the CBK’s pre-Ukraine war’s projection of 5.2 percent average this year, citing the escalating prices of oil prices and other commodities such as wheat.
For example, UAE's Murban oil —Kenya's main source market for petroleum products— traded at $117.24 per barrel last Thursday, a 46 percent jump compared with $80.30 per barrel in the second week of January, according to data tracked by the CBK.