Current account deficit narrows on higher inflows

Kenya’s current account deficit narrowed further last month to five percent of GDP on the back of higher diaspora remittances, better earnings from key exports and a declining import bill.

The Central Bank of Kenya (CBK) said in its latest weekly bulletin that the deficit contracted by 20 basis points—from 5.2 percent in the 12-months to May to five percent in June.

The CBK said in its last Monetary Policy Committee meeting last month that it expects the current account—which measures the balance between the country’s forex inflows and outflows—to end the year at a deficit of 5.8 percent.

“This (narrowing of the deficit) reflected lower oil imports and improvement in exports of tea, horticulture as well as remittances,” said the CBK in the weekly bulletins.

The monetary regulator will shed further light on the inflows and outflows on Thursday when the governor is expected to hold a media briefing on the MPC meeting being held tomorrow.

The CBK said that diaspora remittance inflows increased by 11.7 percent to $288.5 million (Sh30.58 billion) in June from $258.2 million in May (Sh27.37 billion).

The remittances have been increasing since dipping to a 14-month low of $208 million (Sh22.2 billion) in April, when some of the prominent remitting nations were firmly in the grip of Covid-19 lockdown restrictions.

The diaspora remittances are the largest source of forex for the country, ahead of tourism, horticulture and tea earnings.

The World Bank projects a fall in remittances to lower- and middle-income countries by 19.7 percent to $445 billion in 2020 , due to the Covid-19 pandemic.

The current account deficit has also dropped due to higher inflows from tea and horticulture exports that have picked up as destination markets continue to open after Covid-19 lockdowns.

Lower international oil prices—relative to last year— have also helped, combined with lower import expenditure caused by slowing domestic demand and business activity amid the coronavirus pandemic.

CBK figures show that the overall balance of trade was recorded at a deficit of Sh67.72 billion in May compared with a deficit of Sh109.37 billion in the same month last year.