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Low current account deficit props up shilling

kenya shillings
Narrowing gap between dollar inflows and outflows has boosted the Kenya shilling. PHOTO | DIANA NGILA | NMG 

Kenya’s current account deficit has stabilised at 4.7 percent in the first two months of the year, offering crucial support to the shilling against the dollar at a time when other African currencies have struggled against the greenback.

The Central Bank of Kenya (CBK) says the deficit stood at 4.7 percent by the end of February—little changed from 4.6 percent in January—supported by higher horticulture exports, diaspora remittances and a narrowing import bill.

The narrowing of the gap between dollar inflows and outflows has played a big part in helping the shilling remain in positive territory against the greenback this year—a one-percent appreciation in the year-to-date. “Goods exports improved by two percent in the 12 months to February 2019 supported by higher horticultural exports,” said the CBK in a post-MPC meeting report.

“The growth in horticultural exports has been strongly supported by increased acreage, increased internal surveillance, improved market access particularly for avocados due to adoption of good agricultural practices and continued access to the EU market.”

Tea export earnings

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Horticulture export earnings grew by 14 percent to $979 million (Sh98.7 billion) in the 12 months to February, the CBK said, offsetting a decline in tea export earnings which fell by 12.2 percent to $1.29 billion (Sh130 billion) in the period.

Support has also come in from continued growth in diaspora remittances, which account for the biggest share of Kenya’s foreign exchange inflows. The cumulative remittances for the 12 months to February 2019 stood at $2.72 billion (Sh274.5 billion), recording an annual growth rate of 30 percent.

At the same time, import growth slowed down in the 12-month period, mainly due to improved weather conditions that reduced the need for food imports, and lower machinery imports.

“Imports grew by three percent in the period (12 months to February 2019) compared to 13.6 percent in a similar period in 2018,” said the CBK.

At the end of last year, the current account deficit stood at 4.9 percent, having fallen from 6.3 percent at the end of 2017. The CBK projects the deficit to stand at 4.8 percent by the end of 2019.

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