The Central Bank of Kenya (CBK) expects the current account deficit to fall to 5.2 per cent by year-end, revising downwards its earlier projection of 5.4 per cent on improved agriculture and diaspora inflows.
The CBK said following the Monetary Policy Committee (MPC) meeting on Tuesday, the current account deficit is also being cut by a lower import bill for food and SGR related equipment.
In its previous meeting in September, the MPC had projected the deficit to come down to 5.4 per cent by end of the year, from 6.3 per cent at the end of last year.
“The current account deficit is expected to narrow in 2018 compared to 2017 supported by increased agriculture exports, strong diaspora remittances and improved receipts from services particularly tourism,” said the CBK.
“Lower imports of food and SGR related equipment are also expected to support the narrowing of the current account deficit.”
The deficit stood at 5.3 per cent in the 12 months to September 2018.
Longer CBK projections indicate that it should fall to 5.1 per cent by the end of 2019.
The narrowing of the deficit will be key to keeping the shilling’s exchange rate stable amid headwinds from global markets’ volatility, the CBK has said, especially in the absence of outside insurance in the form of the IMF standby facility that expired in September.
The currency has experienced volatility in recent weeks, weakening up to 103.20 units against the dollar mid this month before rebounding to the mid 102 level this week.
The bulk of the inflows that are expected to provide support for the account will come from diaspora remittances.
In the 10 months to October 2018, remittances rose by 42 per cent to Sh229.2 billion compared to a similar period in 2017, CBK data shows.
Tea exports in the meantime rose by eight per cent in the 12 months to September 2018, to hit Sh147 billion, while tourism receipts rose by 10 per cent to Sh105 billion.
On the import side, machinery and transport equipment spending fell by five per cent to Sh461 billion in the 12 months to September.