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Tourism, horticulture drop widens current deficit 6.2pc

National Treasury
The National Treasury building in Nairobi. FILE PHOTO | NMG 

Kenya’s current account deficit widened to 6.2 percent of gross domestic product (GDP) in the one year to March from 5.8 percent in December 2019, attributed by the Central Bank of Kenya (CBK) to lower inflows from horticulture exports and tourism due to Covid-19 pandemic.

Kenya announced its first coronavirus case mid-March, but overseas markets for horticulture products and source markets of tourists had already been in the grip of the outbreak since February.

The disruption in air travel hit the horticulture and tourism sectors hard, but the matching fall in imports has partially mitigated the negative effect on the current account, which measures the net of the country’s forex inflows and outflows.

“Horticulture exports, receipts from transport and tourism services, are expected to decline. A significant decline in horticulture exports, particularly flowers was noted, from March to mid-April 2020. This was mainly due to reduced demand in Kenya’s key export market destinations,” said CBK in a presentation to the Senate on the Covid-19 situation on May 7.

The regulator, however, expects by the end of this year, the current account deficit will remain stable at 5.8 per cent.

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The biggest boost will come from lower petroleum import costs, due to the sharp fall in international crude prices.

Diaspora remittances are, however, expected to show a decline this year, as source markets are suffering negative Covid-19 effects such as job losses.

They were resilient in the first quarter of the year, showing a 6.2 per cent rise to Sh75.7 billion compared to a similar period last year. The negative effects of the Covid-19 outbreak on the remittances are expected to be felt from April onwards.

“The imports of petroleum products are expected to decline by $1.1 billion (or 32 per cent) due to low international oil prices, offsetting the decline in export earnings and remittances,” said CBK.

Latest trade data published by the CBK covering the first two months of the year showed that although horticulture export inflows were falling, tea and coffee had recorded an increase in earnings.

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