Kenya’s current account deficit narrowed to 5.2 percent of GDP in the 12 months to May 2020 compared to 5.6 percent of GDP in the 12 months to April according to the latest CBK weekly bulletin.
The current account deficit is an imbalance in a country’s balance of payment where the nation’s value of imports is greater than the value of exports. In this case, a widening current account deficit implies a net importer situation as the country is importing more goods and services than it is exporting.
CBK attributes the marginal decrease in current account deficit to lower oil imports, improvements in the exports of tea and horticulture. CBK governor, Patrick Njoroge said in June that the lender had observed significant rebound in exports in May and in June, compared to the dismal performance in April.
For instance, in the period January to May 2020, the volume of tea exports increased by 23.5 percent with total exports improving by 4.1 percent in the same period. The CBK governor said that horticulture exports had picked up to almost normal levels owing to easing of restrictions and recovering demand in key destination markets.
Diaspora remittances inflows recovered in May 2020 to hit KSh27.369 billion (USD 258.2 million) from KSh22.069 billion (USD 208.2 million) recorded in April. This was a KSh 5.3 billion or 24 percent growth month on month which boosted the foreign exchange receipts in May.
Considering all these factors, the Governor said there are high chances that the current account deficit could come below the projected 5.8 percent by the end of the year.
Analysts from Genghis Capital in 3Q20 Kenya Macro-Economic Outlook predicted that the cumulative 12-month current account deficit will narrow to 5.0 percent in the third quarter primarily driven by narrowing merchandise trade imports.
However, Fitch analysts in June forecast the current account deficit to widen to 5.4% in 2020, from 4.5% in 2019. Low levels of FDI have mean that Kenya relies heavily on debt flows to finance its ‘twin’ current account deficit.
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