Strong exports in horticulture, steady diaspora remittance and lower food import saw Kenya’s current account deficit narrow to a six - year high in the 12 months to May 2019.
Latest data by the Central Bank of Kenya shows the country’s trade balance narrowed to 4.2 per cent of GDP in 12 months to May from 5.8 per cent same period last year.
‘’This reflects strong performance of exports particularly horticulture, resilient diaspora remittances, and higher receipts from tourism and transport services. Lower food imports also contributed to the narrower trade balance,’’ CBK Weekly Bulletin said.
The reported deficit in May is 60 basis points lower compared to Kenya’s target for 2019 which is 4.8 per cent of GDP from five per cent last year.
Although the value of Kenya's main exports declined by 3.1 per cent to Sh137.5 billion in the first quarter of 2019 compared to Sh141.9 billion registered in a similar period last year, horticultural export rose by seven per cent to Sh36.8 billion.
Furthermore, high diaspora remittances received during the period under review is attributed to the narrowed trade gap, highest since 2013 when the country recorded a current deficit of 2.9 per cent t GDP.
Kenyans abroad were jumping on the tax amnesty which has been in place since June 2016. The income tax amnesty was to lapse June last year but was extended to end of 2018/19 financial year.
This saw Kenyans rush to send home more cash to avoid a 10 per cent tax cut that is now in place. In May, Kenya’s diaspora flows hit Sh24.3 billion a slight drop compared to Sh24.5 billion in April.
The inflows rose 11.4 per cent to $221 million (Sh22.32 billion) in March from $199 million (Sh20.11 billion) in February, helping to propel first quarter remittances above Sh64.79 billion that was sent during the first quarter of last year.
Stable foreign inflows continues to stabilise the country’s forex reserve which rose to $9.76 billion (Sh995.52 billion) or 6.2 months of import cover compared to Sh920 billion or 5.74 months of import cover the previous week.
Even so, Kenya’s total debt rose to Sh5.42 trillion due to sustained domestic borrowing. Data from CBK shows domestic debt is currently at Sh2.8 trillion up from Sh2.7 trillion in March.
