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Current account gap narrows to 6.1pc on lower food imports

The port of Mombasa. KPA is contesting for the African Logistics/Transport Project Developer of the Year Award. FILE PHOTO | NMG
The port of Mombasa. FILE PHOTO | NMG 

The current account deficit narrowed to 6.1 per cent by the end of March from 6.7 per cent in December 2017 on lower food imports, Central Bank of Kenya (CBK) has said.

Drought-driven food imports in the second half of last year combined with the huge outlay in importing rolling-stock for the new railway had pushed the deficit close to seven per cent, bringing the risk of pressure on the currency due to higher dollar demand from importers.

The narrowing of the deficit this year has, however, eased pressure on the shilling, which is exchanging at 101.40 to the dollar compared to 103.30 at the beginning of the year.

“The domestic foreign exchange market remains stable supported by the narrowing in the current account deficit to 6.1 per cent at the end of March from 6.7 per cent in December,” said CBK governor Patrick Njoroge at a media briefing on Tuesday.

“This is expected to narrow further to 5.4 per cent of GDP in 2018, supported by stronger growth in agricultural exports, higher diaspora remittances and tourism receipts.”

The CBK data shows that remittances, tourism inflows and tea exports continued to offer the bulk of support for the current account in 2017 and in the first three months of this year.

Kenyans abroad sent home a record $641.5 million (Sh64.3 billion) in the first three months of this year.

There remains a risk to this outlook though due to rising crude prices in the international market.

Oil has been trading at three-year-high levels of between $77 and $80 per barrel in recent days, saddled by concerns over possible reduction in global supply in the wake of US imposition of fresh sanctions against Iran – a major oil producer.

The resulting increase in petroleum imports is likely to have a significant impact on the current account, given that this commodity accounts for nearly 15 per cent of the country’s total import bill.

Dr Njoroge, however, played down this rise saying it would be offset by lower imports.

He added that a $989.8 million stand-by precautionary facility with the IMF, will provide “an additional buffer against external shocks.”