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Current account deficit drop boosts the shilling

tourists in Mombasa Kenya
Both tourism and diaspora remittances returned record inflows in 2018. FILE PHOTO | NMG 

Kenya’s current account deficit shows the import-export gap narrowed further in January as receipts from agriculture, tourism and diaspora remittances outpaced import growth.

Latest data provided by the Central Bank of Kenya shows that the deficit as a percentage of GDP stood at 4.6 percent at the end of January, compared to 4.9 percent at the end of December 2018.

Both tourism and diaspora remittances returned record inflows in 2018, with the dollars earned also backing the shilling to retain the upper hand against the dollar going into this year.

“Preliminary data on balance of payments shows continued narrowing of the current account deficit to 4.6 percent of GDP in the 12 months to January 2019, from 5.5 percent in the year to January 2018, and an estimated 4.9 percent in 2018,” said the CBK in their latest weekly report.

“The improvement is supported by resilient tea and horticultural exports, strong diaspora remittances and improved tourism and transport service receipts.”

In January, diaspora remittances stood at Sh24.5 billion, which was a 17 percent increase on similar month of last year, when Kenyans living abroad sent home Sh20.9 billion.

In 2018, the total remittances stood at Sh270 billion, which was a 39 per cent or Sh75 billion increase against 2017.

Grow exports

Tourism earnings for the year also rose significantly by 31.2 percent to hit a record Sh157 billion as they edged out tea as the second highest forex source for the country.

While these inflows from the traditional sources are increasing, concern remains over the continued inability of the country to grow manufactured goods exports.

Although the economy remains on pace to grow by about six percent this year, the private sector have reported reduced demand from customers—and in tandem a fall in output.

A Purchasing Managers Index (PMI) for February done by IHS Markit and Stanbic said the headline reading fell from 53.2 in January to 51.2 in February, signalling only a modest improvement in the health of the Kenyan private sector economy.

“A weaker rise in overall demand instigated slower output growth at Kenyan firms in February. The rate at which activity increased was the least marked in 15 months, with some panellists reducing output due to cash flow problems and unfavourable weather conditions” said Stanbic in the report.

In the past month, forex dealers have also reported reduced demand for dollars by corporate customers in the country, which is indicative of reduced imports of raw materials for production.

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