This archive report was first published on 8 July 2020.
On July 3, 2020, the Central Bank of Kenya (CBK) released its latest weekly bulletin, revealing that Kenya's current account deficit had narrowed to 5.2 percent of GDP in the 12 months to May 2020, compared to 5.6 percent in the 12 months to April 2020.
The current account deficit is an imbalance in a country's balance of payments where the nation's value of imports exceeds the value of exports. In this case, the widening current account deficit implies a net importer situation, as the country is importing more goods and services than it is exporting.
According to the CBK, the marginal decrease in the current account deficit can be attributed to lower oil imports, improvements in the exports of tea and horticulture. CBK Governor Patrick Njoroge noted in June that the lender had observed a significant rebound in exports in May and 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 also stated that horticulture exports had picked up to almost normal levels, owing to the easing of restrictions and recovering demand in key destination markets.
Diaspora remittances inflows recovered in May 2020, hitting KSh27.369 billion (USD 258.2 million), up from KSh22.069 billion (USD 208.2 million) recorded in April. This represented a KSh 5.3 billion or 24 percent growth month-on-month, which boosted foreign exchange receipts in May.
Considering these factors, the Governor expressed optimism that the current account deficit could come below the projected 5.8 percent by the end of the year.
Analysts from Genghis Capital predicted in their 3Q20 Kenya Macro-Economic Outlook that the cumulative 12-month current account deficit would narrow to 5.0 percent in the third quarter, primarily driven by narrowing merchandise trade imports.
However, Fitch analysts forecasted in June that the current account deficit would widen to 5.4% in 2020, from 4.5% in 2019. Low levels of Foreign Direct Investment (FDI) have meant that Kenya relies heavily on debt flows to finance its 'twin' current account deficit.
