TRADE

Kenya's current account deficit hits 5.4% in October

CBK projects it to ease to 5.2 per cent by end of this month

In Summary
  • The increase in imports was attributed to higher international oil prices due to an increase in global demand
  • Kenya's current account deficit touched a decade peak of 7.2 per cent of GDP in 2017 as the country dealt with election-related uncertainty.
CBK Headquarters
CBK Headquarters
Image: FILE

Kenya’s current account deficit widened to 5.4 per cent in 12 months to October compared to 4.8 per cent the same period last year.

The weekly Central Bank of Kenya bulletin attributes the higher deficit to lower service receipts as well as high imports, which cancelled benefits accrued from from agricultural exports and remittances.

The country imported goods and services worth $5.98 billion (Sh669 billion) in 12 months to October compared to $5.1 billion (Sh550.8 billion) same period last year. 

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

A current account deficit is occasioned by high spending on imports compared to export earnings.

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

CBK projects the annual current account deficit to ease to 5.2 per cent.

The wider deficit reflected a 14 per cent increase in imports which more than offset the eight percent increase in exports compared to a similar period in 2020.

The increase in imports was attributed to higher international oil prices due to an increase in global demand as economies reopen amid supply chain disruptions.

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 112.73 against the greenback, forcing importers to pay more. Exports on the other hand earned more.  

The value of merchandise exports increased to $6.5 billion during the period under review $6billion same period last year, largely reflecting increases in horticulture (21.2 per cent), manufactured goods (28.3 per cent), raw materials (20 per cent), chemicals and related products (19 percent)

Miscellaneous manufactured articles increased (14.1 per cent) which more than offset the decline in tea and re-exports which declined by 7.3 and 23.2 percent, respectively.

Earnings from tourism improved with the gradual reopening of international borders and the easing of the COVID-19 containment measures

The export 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.

High imports and low exports continue to hurt the country's forex reserve which has dropped for the second month in a row as CBK iron out volatility in the market.

According to the CBK bulletin, the country's FX reserves dropped to $8.74 billion or 5.34 of import cover on Friday compared to 5.36 months of import cover the previous week.