TRADE IMBALANCE

Kenya's current account deficit widens to 5.5% - CBK

This was the highest trade deficit in two years since 2018

In Summary
  • The current account deficit touched a decade peak of 7.2 percent of GDP in 2017 as the country dealt with election-related uncertainty.
  • The country's earnings from tea in the first half of the year dropped by Sh5 billion.
CBK Headquarters
CBK Headquarters
Image: FILE

Kenya’s current account deficit has widened to 5.5 percent in 12 months to May compared to 5.2 percent in the same period last year.

The Weekly bulletin by the Central Bank attributed the drop to lower service receipts, which more than offset the increased receipts from exports and remittances.

This was the highest trade deficit-  a measure of a country's trade with other nations - in two years since 2018 when the country recorded a 5.8 percent trade shortfall with international partners. 

The current account deficit touched a decade peak of 7.2 percent of GDP in 2017 as the country dealt with election-related uncertainty.

The service sector which accounts for almost 45 percent of the country's gross domestic product was almost crippled in the first four months after the country reported its first Covid-19 case in March last year.

Kenya shut its airspace, limiting travel and closure of several businesses, with the education and hospitality sector suffering the most. 

Hoteliers estimate the country lost in excess of Sh150 billion in tourism earnings to the Covid-19 pandemic as the tourism industry collapsed across the world.

The sector is one of the leading sources of foreign exchange. It was expected to bring in Sh165.13 billion up from Sh163.5 billion last year, a one per cent growth.

Tourism contributes 10 percent of Kenya’s annual GDP and employs over two million people.

Kenya's primary agricultural forex earners, tea and coffee suffered a major setback in the past 12 months after Covid-19 impacted negatively on demand for the commodities globally.

The country's earnings from tea in the first half of the year dropped by Sh5 billion.

Data from the Tea Directorate shows the value in the review period dropped to Sh55 billion from Sh60 billion recorded in the same period last year.

Tea Directorate attributes the decline to low demand, which also impacted negatively on price per kilo, having dropped to Sh221 from Sh239 in the corresponding period last year.

Diaspora remittances, Kenya's highest forex earner maintained an upward trend and reached an all-time high of $315.8 million in May this year, up 22 percent from $258.2 million in May 2020.

Similarly, earnings from horticulture in the first 10 months of this year defied the Covid-19 hit to rise 8.6 percent to Sh126 billion compared to a similar period a year earlier.

Fruits export earnings rose to Sh17 billion from Sh11 billion while flowers, which normally account for the largest portion of the income from horticulture exports, raked in Sh89.6 billion — an improvement from Sh83.7 previously.

Horticulture is a major foreign exchange earner alongside tea, diaspora remittances and tourism.

Steady earnings from horticultural exports, diaspora remittances and the government's external borrowing boosted the country's forex  cushioning the shilling against global volatilities.  

Foreign currency reserves held by the Central Bank of Kenya rose for the third consecutive week to $9.59 billion as of July 9 from $9.49 billion the previous week.

 ''The reserves are adequate to provide 5.86 months of import cover, above the statutory requirement of at least four months of import cover,'' CBK said. 

Even so, the shilling decimally weakened against the US dollar on high demand by importers, closing last week at 107.95  compared to 107.92  the previous week.