TRADE IMBALANCE

Kenya's current account deficit hit 5.4% in July - CBK

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

In Summary
  • A current account deficit occurs when a country spends more money on imports than it receives from its exports.
  • A deficit of 5.5 per cent recorded in May this year was the highest in three years. 
CBK Headquarters
CBK Headquarters
Image: FILE

Kenya’s current account deficit widened to 5.4 per cent in 12 months to July compared to 4.9 per cent the same period last year.

The weekly Central Bank of Kenya bulletin has attributed the higher deficit to lower service receipts as well as high imports, which more than offset increased receipts from agricultural exports and remittances.

The country imported goods and services worth $5.5 billion (Sh594 billion) in 12 months to July compared to $5.1 billion (Sh550.8 billion) same period last year. 

This is the second-highest deficit in two years since 2018 when the country recorded a 5.8 per cent trade shortfall with international partners.

A deficit of 5.5 per cent recorded in May this year was the highest in three years. 

A current account deficit occurs when a country spends more money on imports than it receives from its exports.

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

The negative trade was worsened by a weak local currency that dropped to an all-time low of Sh107.15 against the dollar. 

Yesterday, the shilling touched six months low of 110.05 against the greenback, forcing importers to pay more. Exports on the other hand earned more.  

Kenya's total exports recorded $526.3 million in Jun 2021, compared to $587.7 million in May. Kenya's total exports data is updated monthly, available from Aug 1998 to Jun 2021, with an average value of 4415.4 million.

The data reached an all-time high of $621.9 million in Mar 2021 and a record low of $126.9 million in October 1999.

The country has been witnessing shrunk earnings from the export market for the past 15 months on social-economic challenges brought about by the Covid-19 pandemic that saw international borders closed for close to four months last year. 

This negated gains from the service sector that accounts for almost 45 per cent of the country's gross domestic product. 

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.

Even so, earnings from horticulture in 12 months to July defied the Covid-19 hit to rise 8.5 percent to Sh1364 billion compared to a similar period a year earlier.

High imports and low exports continue to hurt the country's forex reserve which dropped to six week low of $8.883 billion or 5.43 months of import cover in the week ended September 2.