Kenya’s current account deficit narrows by 40pc on recoveries in tourism

Monday, July 4th, 2022 03:40 | By
Kenyan currency

EARNINGS:  Rising global inflation and recoveries in tourism and exports helped to narrow Kenya’s current account deficit by 40 per cent in the first three months of the year giving respite to the exchange rate. Kenya’s exports rose 8 per cent as tourism and remittances growth helped to narrow the gap between imports and exports.

A current account deficit indicates that a country is importing more than it is exporting.  “During the first quarter of 2022, the current account deficit narrowed by 39.7 per cent to Sh95 billion from Sh157 billion in the corresponding quarter of 2021,” Kenya National Bureau of Statistics (KNBS) said.

A country running a large current account deficit is always at risk of seeing the value of the currency fall. If there is insufficient capital flows to finance the deficit, the exchange rate will fall to reflect the imbalance of foreign flows of funds.

The shilling weakened from Sh105 to the dollar last year to Sh115 in the first quarter of this year. making it expensive for people to buy US dollars in order to make foreign purchases.According to NCBA chief executive and chairman of Kenya Bankers Association John Gachora, the rising cost of goods abroad due to inflation has also reduced the supply of dollars as more dollars are now needed to buy the same amount of goods.

“What we see is the cost of imports has risen and so it takes more dollars to buy the same volume of goods compared to before,” he said.

Export earnings

This was also helped by export earnings growing by 8.8 per cent to Sh209.1 billion in the first quarter of 2022 as a result of an increase in the value of exports of tea.

International trade in services receipts increased remarkably from Sh110.9 billion in the first quarter of 2021 to KSh221.5 billion in the first quarter of 2022. Similarly, services payments grew by 22.9 per cent to Sh122.6 billion in the quarter under review. 

“Consequently, the surplus in international trade in services grew significantly from Sh11.2 billion in the first quarter of 2021 to Sh98.9 billion in the same quarter of 2022,” Knbs said in the latest balance of payments statistics.

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