Capital Markets

Current account deficit narrows to 5.8pc in June

One headwind to the current account projection would be higher import costs of petroleum products. FILE PHOTO | NMG 

The current account deficit narrowed to 5.8 per cent in the second quarter of the year from 6.3 per cent in March, boosted by rising diaspora remittances, agriculture exports and a falling food import bill.

Latest data from Central Bank of Kenya (CBK) shows the contraction was mainly backed by higher remittances, which rose by 15 per cent to Sh74.1 billion in the three months to June.

CBK projects the deficit to narrow further in the second half of the year and end 2018 at 5.4 per cent.

“The current account deficit is expected to narrow further in 2018 supported by strong growth in agriculture exports, resilient diaspora remittances, and improved tourism receipts,” said CBK in a statement.

In the 12 months to June 2018, remittances stood at Sh233.9 billion ($2.33 billion), up from Sh178.5 billion ($1.78 billion) in the 12 months to June 2017.

In the same period tea export earnings rose to Sh147 billion ($1.46 billion) from Sh127.4 billion ($1.27 billion), while horticulture receipts were up to Sh92.9 billion ($924 million) from Sh80.9 billion ($805 million).

Inflows from tourism rose to Sh99.7 billion ($992 million) from Sh94.7 billion ($942 million) while coffee exports brought in Sh22.1 billion ($220 million), down from Sh24.2 billion ($241 million) in the 12-month period ending June 2017.

One headwind to the current account projection would be higher import costs of petroleum products.

A barrel of crude oil in the international market has gone up by 27.5 per cent since the beginning of the year to $74.70, in turn raising the cost of fuel in the country.

A litre of petrol is retailing at Sh112.20 in Nairobi compared to Sh104.17 at the beginning of the year.

Diesel is up to Sh103.25 a litre from Sh92.44.

Kenya operates caps on oil prices that the regulator ERC announces on the 14th day of every month.

CBK, however, expects that some of the impact will be absorbed by a corresponding fall in the food import bill, which was a major contributor to pushing the current account deficit up to 6.7 per cent by the end of last year, from 5.2 per cent in 2016.

“Lower imports of food and SGR related equipment in 2018 are expected to moderate the impact of higher international oil prices on the petroleum import bill,” said the CBK.