Kenya’s trade deficit has for the first time crossed the Sh1 trillion mark driven by the more than doubling of food imports and machinery purchase from abroad amid sluggish exports.
The deficit — the gap between imports and exports — widened to Sh1.034 trillion in the 11 months to November, up from Sh778.04 billion in the same period in 2016, the Central Bank of Kenya (CBK) data shows.
Crossing the psychological level of Sh1 trillion underlines the economic impact of the increased food imports due to a drought that posed a major risk to people, livestock and wildlife.
Imports increased 20.93 per cent to Sh1.58 trillion in the period to November while exports rose a measly 3.37 per cent to Sh549.18 billion.
Analysts say the widening deficit is piling pressure on the shilling against global currencies such as the dollar, denying Kenya an opportunity to create more jobs because locals lose out to foreign manufacturers.
The high demand for the dollar to fund imports forces the CBK to intervene, depleting foreign exchange reserves.
A wider deficit is watched closely by global investors, especially when Kenya seeks foreign debt, as it affects the recommended external debt service to exports ratio of 21 per cent, which Kenya has already breached.
“Kenya’s export performance has been relatively weak compared to a lot of sub-Saharan Africa’s peers and … that means considerations around foreign exchange stability are even more important to Kenya’s macroeconomic stability outlook than what has been the case traditionally,” said Standard Chartered Bank chief economist for Africa Razia Khan.
Forex reserves dropped from a high of $8.31 billion (Sh856.85 billion) in early May to $7.10 billion (Sh753.73 billion) last November and $6.994 billion (Sh715.77 billion) on January 12. Food imports rose 124.1 per cent to Sh223.8 billion in the 11 months while machinery imports rose by Sh47 billion to Sh449.48 billion.
But the impact of the rising imports was amplified by the flat exports, which suggests a difficult operating environment for local enterprises — further hurting income and employment opportunities.
Kenya’s main exports are mainly agro-based such as coffee, tea and horticultural produce that were equally affected by the biting drought.
Around 2.7 million Kenyans relied on food aid after low rainfall in October and November 2016 and rainy season in the April-June season.