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Import-export deficit narrows to 11-year low

Eldoret International Airport
Workers prepare a consignment of avocados for export at the Eldoret International Airport. FILE PHOTO | NMG 

The current account deficit, mainly the gap between imports and exports, fell to the lowest level in 11 years due to rising exports and remittances.

The Central Bank of Kenya (CBK) said in its latest weekly bulletin that other factors pushing the deficit down to 4.9 percent of the gross domestic product (GDP) were an increase in tourism receipts and a decline in food imports.

The deficit was previously lowest in 2007 when it hit 3.8 percent of the GDP but has since been above that level as the amount of imports increased and exports rose at a slow pace.

“Preliminary data on balance of payments shows continued narrowing of the current account, to 4.9 percent of GDP in 2018 from 6.3 percent in 2017,” said the CBK.

“The improvement is mainly due to increased agricultural exports, remittance inflows and tourism receipts, and decline in food imports,” the CBK said.

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Renaldo Desouza, head of research at Nairobi-based investment bank Sterling Capital, said the big change in the current account was not surprising after the more than 30 percent increase in diaspora remittances and improved earnings from agricultural exports and tourism.

“In addition the relative strength of the Kenya shilling in the year reduced import (even when taking into consideration rises in crude prices) and external debt repayment costs,” said Mr Desouza.

The lower deficit gives a major boost to the shilling, which has lately shown signs of strength, now standing at nearly 100 units to the dollar for more than a week now.

In the past two weeks, the local unit has also strengthened in the face of increased diaspora remittances and weak demand for the dollar.

“The narrowing of the current account deficit suggests positive cash inflows, thus reduced pressure on the Kenya shilling.

As to whether this is sustainable depends on the sustainability of inflows in the medium and long term,” he said.

The 2018 current account deficit level was lower than 2017’s 6.3 percent of the GDP and just about half of 2012’s 10.6 percent.

In the past 11 years, the deficit has been highest in 2011 and 2012, both years characterised by high inflation, high interest rates and a weakened exchange rate.

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