Market News

Trade deficit up 46pc as imports rise sharply

Imports tied to the SGR and machinery also pushed up the bill. FILE PHOTO | NMG
Imports tied to the SGR and machinery also pushed up the bill. FILE PHOTO | NMG 

Kenya’s trade deficit worsened by 46 per cent in the first five months of the year, with the country’s import bill recording a sharp jump on higher capital equipment purchases.

Latest data from the Kenya National Bureau of Statistics (KNBS) shows the gap between imports and exports grew to Sh454.9 billion in the five months to May, compared to Sh311.8 billion in a similar period last year.

While exports declined only marginally by 0.9 per cent or Sh2.2 billion to stand at Sh248.3 billion, imports grew by 25 per cent or Sh140.9 billion to Sh703.2 billion in the period compared to last year.

The largest year-on-year growth in imports was recorded in the first three months of the year, which the Central Bank of Kenya (CBK) attributes to imports of the rolling stock for the new standard gauge railway.

“Import numbers in those particular months surged on purchase of machinery and transport equipment,” CBK governor Patrick Njoroge said at a Monetary Policy Committee (MPC) press conference at the end of May.

Imports of cereals and sugar also pushed up the import bill in the first half of the year as the country counted the cost of drought.

As a result, the current account deficit widened to 6.2 per cent at the end of May from 5.2 per cent at the end of last year. The CBK though forecasts that the deficit will come down to about 5.8 per cent by the end of the year.

A large deficit normally piles pressure on the shilling, forcing the CBK to intervene thus depleting foreign exchange reserves. The fall in exports meanwhile is indicative of the difficult operating environment for businesses.

The July purchasing managers index (PMI) by IH Markit and Stanbic Bank shows that even as businesses continued to receive orders from export markets, they were hampered by lack of access to credit and pre-election caution.

“Output fell for the fifth time in the past six months during July. More than one-in-three panellists reported a decline in business activity, with firms widely linking this to the General Election, customers facing money shortages, high inflationary pressures and a lower customer turnout,” they said in the PMI report.