Current account deficit widens with rising imports
Market News
Current account deficit widens with rising imports
Monday, May 31, 2021
Central Bank of Kenya. FILE PHOTO | NMG
summary
- Kenya’s current account deficit widened slightly as imports grew faster than export earnings in the first four months of the year.
- The current account measures the balance between inflows and outflows of a country’s foreign currency – recording as a deficit when outflows exceed inflows.
Kenya’s current account deficit widened slightly as imports grew faster than export earnings in the first four months of the year.
Data from the Central Bank of Kenya (CBK) shows that the deficit, measured as a percentage of gross domestic product, stood at 5.2% in the 12 months leading up to April, down from 5.1% in March.
The current account measures the balance between inflows and outflows of a country’s foreign currency – recording as a deficit when outflows exceed inflows.
Inflows come in the form of export earnings, diaspora remittances, and investment inflows, while import costs and government external payments make up the bulk of the outflows.
CBK data shows that although exports grew 5.5% during the period and diaspora remittances increased 23.3% from 2020, the steep rise in the bill of imports has meant that the deficit has widened by 40 basis points since December.
Imports were driven by increased demand for consumer goods and supplies used by the manufacturing sector.
“Imports of goods rose 15.2% in the first four months of 2021 compared to a similar period in 2020, largely due to improved imports of intermediate goods,” CBK said in a statement. after the May Monetary Policy Committee meeting.
“Revenues from service exports have remained modest, mainly due to weaknesses in international travel and transport.”
The CBK, however, said it expected the deficit to remain stable for the remainder of the year, projecting it at 5.2% for 2021.
The decline in 2020, when it fell to 4.8% from 5.8% in 2019, was largely due to a lower import bill as the economy adjusted to the hardships caused by the pandemic of Covid-19.
A lower fuel import bill also helped, as crude prices fell sharply in the early months of the pandemic due to declining demand, with economies stranded to control the spread of the disease.
Fuel prices have since rebounded, but the CBK stressed that this is not the main driver of Kenya’s rising import bill, but rather demand for goods for domestic and industrial use.