ACCOUNT

Reduced imports and boost on tourism good for Kenya – Fitch

The global ratings agency maintained its negative outlook on the country's fiscal consolidation efforts

In Summary
  • The global agency noted that substantial efforts in the two will ease the government's external vulnerabilities in managing its account.
  • A current account deficit occurs when a country spends more money on imports than it receives from its exports and tourism receipts.

Cutting on imports and a gradual recovery in tourism are key in maintaining Kenya's current account deficit at 5 per cent, Fitch Ratings has said.

The global rating agency noted that substantial efforts in the two will ease the government's external vulnerabilities in managing its account.

“Kenya’s net external debt is more than 2.5 times that of its peers, reflecting substantial external indebtedness of the government,” the agency noted.

A current account deficit occurs when a country spends more money on import of goods and services than it receives from its export of the same.

The country has witnessed depressed earnings from the export and tourism market since the Covid-19 pandemic hit, but this is slowly improving with the reopening of borders and international travel.

The latest CBK data shows that Kenya’s current account deficit stands at 5.4 per cent.

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.

CBK data shows that the country's import bill currently stands at Sh172.95billion while the export bill stands a Sh61.34billion.

According to the Economic Survey 2021, tourism's receipts declined from Sh163.6 billion in 2019 to Sh91.7 billion in 2020.

The National Treasury expects the country's current account deficit to fall to 5.7 per cent of gross domestic product in its 2022/23 (July-June) budget versus 7.4 per cent in 2021/22.

In August, the ministry had projected a 5.6 per cent deficit in 2022/23.

“Leading indicators for the economy so far point to a robust economic recovery following the reopening of the service sectors and stronger global demand,” Treasury CS Ukur Yatani said.

Further, the global ratings agency maintained its negative outlook on the country's fiscal consolidation efforts, giving it a B+ rating.

Fiscal consolidation is defined as policies aimed at reducing government deficits and debt accumulation. 

Kenya's debt has grown exponentially in recent years, hitting Sh7.712 trillion in June while annual debt servicing obligations have risen to Sh1.17 trillion in the current financial year.

High debt coupled with a high account deficit means the country is performing poorly in managing the two.

The agency noted that Covid-19 economic shocks have greatly delayed efforts in the country's efforts towards pushing it back to achieve this.

“The negative outlook reflects high public and external debt levels and a record of missed fiscal targets,” said Fitch ratings.

The firm however noted that the IMF $2.4 billion support programme that was approved in April provides a firmer policy anchor.

The agency also notes that the August 2022 elections pose a key risk to fiscal consolidation.

“Even though , constitutional reforms backed by President Uhuru Kenyatta and his opponent-turned-ally Raila Odinga have failed, higher than-expected instability will further delay fiscal consolidation efforts,” said Fitch.