Current account widens over oil, food import bill

Central Bank of Kenya. FILE PHOTO | NMG

Kenya’s current account deficit widened further in May on sustained pressure from high fuel and food import costs, which negated improved dollar inflows from remittances and agriculture exports.

The deficit as a percentage of GDP rose to 5.3 percent in the 12 months to May 2022 from 5.1 percent in April, piling more pressure on the shilling as it meant there was a higher demand for dollars in the local market to fund the rising imports.

The current account measures the difference between a country’s forex inflows and outflows, falling into deficit when outflows are higher.

The Central Bank of Kenya (CBK) has flagged the higher fuel and food import costs as a key risk to the economy this year, raising the base lending rate at its last Monetary Policy Committee (MPC) meeting in May in response to the higher inflation caused by these rising costs.

Higher crude and food prices in the global market-driven in part by the Russia-Ukraine war—pushed Kenya’s inflation to a 58-month high of 7.9 percent in June, breaching the government’s upper limit target for the first time since August 2017.

The shilling is also trading at an all-time low of 118.15 to the dollar as per the official rate published by the CBK, having depreciated from a rate of 113.14 at the beginning of this year.

“A widening current account deficit, amid a fuel-linked increase in the import bill, has elevated the local demand for US dollars and as such sustained the Kenya shilling’s depreciation by an average 4.56 percent this year,” said NCBA in a weekly fixed income note.

Oil prices have gone up to $120. The latest CBK data shows that Kenya imported goods worth Sh2.23 trillion in the 12 months to March 2022 against export Sh789 billion earnings.

In the year ending March 2021, the deficit had stood at Sh1.07 trillion, arising from imports worth Sh1.72 trillion versus exports of Sh652.5 billion.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.