Current account deficit narrows to new five-year low

Increased diaspora remittances helped narrow the current account deficit- to a five-year low, latest data from Central Bank of Kenya (CBK) shows.

The current account deficit - the gap between export and import earnings - as a fraction of national output (Gross Domestic Product (GDP) narrowed to 4.2 per cent in the 12 months to July this year from five per cent in the same period last year.

“Preliminary data shows that the current account deficit narrowed to 4.2 per cent of GDP in the 12 months to July 2019 from five per cent in December 2018,” said CBK in its weekly bulletin.

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“This reflects resilient performance of horticulture exports, strong growth in diaspora remittances, higher receipts from tourism and transport services and slower growth of imports.”

Record remittances from Kenyans living and working abroad contributed a lot to the contraction in the current account deficit, even as the country continued to benefit from a reduction in the global oil prices.

Diaspora remittances in June surged to an all-time high of $295 million (Sh30.3 billion).

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This was an increase of 21 per cent from $243 million (Sh24.7 billion) of diaspora remittances recorded in May.

The record-breaking remittance inflows, which coincided with the lapse of the June-30 deadline for the return of taxable money stashed outside the country, saw the 12-month cumulative inflows hit $2.77 billion (Sh282.3 billion), playing a key role in narrowing the gap between money flowing into the country and money flowing out of the country.

Declined marginally

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This saw foreign currency deposits in local banks increase to Sh620 billion as of the end of June.

The last time the monthly increases in remittance inflows hit a record high was in February 2009 when money from abroad jumped by 34.9 per cent to $53.3 million (Sh5.4 billion in current exchange rates) from $3.9 million (Sh4.03 billion) in January of that year.

Also last week, international oil prices declined marginally, amid continued fears of a potential slowdown in the growth of major world economies, according to CBK.

“Murban oil prices declined marginally to $ 61.17 per barrel on August 29 from $ 61.94 per barrel on August 22,” noted CBK in its report for the week ending August 30.

In July, the average landed cost of imported super petrol decreased by 1.83 per cent from $538.8 (Sh55,469) per cubic metre in May to $528.26 (Sh54,384.37),” Energy and Petroleum Regulatory Authority (EPRA) (EPRA) said in a statement.

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Besides improved export earnings, the National Treasury has also attributed the narrowing of the current account deficit to slower growth in imports due to lower food and Standard Gauge Railway–related equipment imports.

However, as of August 29, the CBK usable foreign exchange reserves declined to $9.2 billion (Sh925.2 billion) or 5.78 months of import cover,  from $9.3 billion (966 billion) in the previous week.

This saw the shilling come under some slight pressure marginally, weakening to an exchange rate of Sh103.48 per US dollar on August 29, compared to Sh102.96 on August 22.

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GDPCentral Bank of KenyaCBK