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Current account steady despite higher import bill on remittance growth

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Central Bank of Kenya (CBK) data show the current account—which measures inflows and outflows of hard currency—remained unchanged in the month.
  • It was, however, higher in May at 5.5 percent, but CBK expects it to end the year at 5.2 percent.

Kenya’s current account deficit has remained steady at 5.4 percent of GDP in the 12 months to July, as higher remittance and horticulture earnings balanced out lower service receipts and a rising import bill.

Central Bank of Kenya (CBK) data show the current account—which measures inflows and outflows of hard currency—remained unchanged in the month.

It was, however, higher in May at 5.5 percent, but CBK expects it to end the year at 5.2 percent.

“Provisional data shows that the current account deficit was 5.4 percent of GDP in the 12 months to July 2021 compared to 4.9 percent of GDP in the 12 months to July 2020,” said CBK in a bulletin.

“The higher deficit was attributed to lower service receipts as well as high imports, which more than offset increased receipts from agricultural exports and remittances.”

Lower income from the travel and tourism sector has been a key reason for the higher deficit year-on-year, with some key source markets such as the UK continuing to issue caution against travel to the country.

A strong growth in imports as domestic consumption and production continues to recover has also weighed on the current account, with petroleum, food and industrial goods imports going up significantly this year.

Food imports for instance hit a record high of Sh103.34 billion in the six months to June, a 13.6 percent increase on the corresponding period last year.

Higher remittance and agriculture export earnings have however helped temper the widening of the deficit.

Cumulative remittance inflows for the seven months to July increased by 20 percent to Sh229.7 billion ($2.09 billion) compared to the first seven months of 2020.

Tea, horticulture and coffee earnings in the first half of the year cumulatively rose by 10 percent to Sh153.8 billion, buoyed by higher earnings from horticulture (up 29.5 percent) and coffee (up 18.3 percent) which offset a 5.6 percent drop in tea earnings.