Kenya’s current account deficit could hit 5-year high - CBK

Kenya’s current account deficit is projected to hit a five-year high as the country's imports outstrip the gains made in horticulture and tea exports.

The deficit as a percentage of GDP is expected to widen to 5.6 per cent this year, mainly as a result of higher oil prices Central Bank of Kenya notes in its latest economic outlook data.

Cumulative 12-month oil imports hit $5.4 billion (Sh661.2 billion) in September, nearly double the $2.9 billion (Sh355.1 billion) spent in the same period last year.

It is followed by machinery and transport equipment whose value for the period increased to $4.3 billion (Sh526.5 billion) from $4.2 billion (Sh514.3 billion.

The country also spent $3.6 billion (Sh440.8 billion) to import manufactured goods up from $3.5 billion (Sh428.6 billion) and chemicals $3.4 billion (Sh416.3 billion), up from $2.8 billion (Sh342 billion).

The high imports are evidenced by the rise in vessels calling at the Port of Mombasa in the wake of an easing global supply chain, after reduced activities during the Covid-19 pandemic and the onset of the Russia-Ukraine war.

Kenya Ports Authority (KPA) has reported a high number of ships calling at Mombasa with at least 34 expected between yesterday and Friday next week.

These are mainly bringing in containerised goods, bulk steel products, coal, resin chips(used in the packaging industry), palm oil, sorghum, vegetable oil, used motor vehicles, and petroleum products.

“There has been an increase in the number of vessels calling,” KPA principal communication officer Haji Masemo told the Star.

The rise in vessels number comes amid a drop in freight costs which have eased this year.

Global container freight rate index of a 40 feet container is currently at an average $3,502 down from highs of $11,000 in August last year.

According to the Shippers Council of Eastern Africa (SCEA), the return of larger vessels has helped bring down freight costs.

As global trade picked last year, most shipping lines scheduled journeys on key international trade routes and major global ports leaving a few feeder vessels to serve smaller ports.

This has however changed SCEA chief executive Gilbert Langat notes.

“They (freight costs) will still come down and we expect they will normalise at around 2,500 dollars by the turn of the year,” Langat told the Star.

The deficit, albeit, is a lower revision from an earlier projection of 5.9 per cent.

“It is projected at 5.6 percent of GDP in 2022 compared to 5.9 percent previously estimated, on account of improved receipts from service exports and resilient remittances,” CBK governor Patrick Njoroge said in his post-Monetary Policy Committee briefing, last Thursday.

This however still piles pressure on the shilling which remains weak against the dollar, amid high demand by importers.

The local currency which has been on a losing streak against the dollar fell to a record low of 122.70 a week ago, before slightly gaining, opening at 122.33 yesterday.

The country’s forex reserves have also been shrinking even as CBK maintains the country has enough to cover at least four months of imports.

The current account measures the difference between a country’s forex inflows and outflows.

Official data shows usable foreign exchange reserves were at $7.04 billion (Sh862 billion) as of last week Friday, with concerns they are headed to an eight-year low.

This exposes the country to difficulties in making international payments, including imports and debt repayment, and hedging against exchange rate risks.

They have fallen from $8.87 billion (Sh1.085 trillion) same period last year amid the widening current account deficit.

CBK expects reserves to increase on expected November-December diaspora remittances and the IMF loan to be disbursed in December.

“We are not stressed. We have adequate reserves to smooth out any volatility that may come,” Njoroge told journalists during the post-Monetary Policy Committee briefing last week.

Last year, the country’s trade deficit widened to Sh1.407 trillion.

The Economic Survey 2022 shows the value of imports was Sh2.151 trillion in 2021 up from Sh1.643 trillion in 2020, a 30.9 per cent growth.

This was mainly driven by a rise in petroleum product imports which accounted for Sh335.3 billion and industrial machinery (Sh255.8 billion), with the total deficit growing from Sh999.9 billion in 2020.

China and India remained the country’s biggest import sources as the Asian market accounted for 65.7 per cent of the country’s total import bill.

The value of imports from China increased to Sh441.4 billion up from Sh361.4 billion while those from India were valued at Sh230.9 billion up from Sh188.6 billion the previous year.