The Central Bank of Kenya expects that the current account deficit will remain steady at 5 percent of the Gross Domestic Product going forward.
“5 percent is a stable thing. It can be completely financed by foreign flows,” said Dr. Patrick Njoroge the Central Bank Governor during the 5the Annual East Africa Investor Conference on Wednesday.
Njoroge said this is so because Kenya benefits greatly from the external savings of others.
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 percent in the 12 months to July this year from 5 percent in the same period last year.
The Governor expressed optimism that the Government’s move to tighten its fiscal policy, could lead to an aggressive monetary policy stance.
“They have even signalled that there will be significant expenditure cuts because they want to have a strong fiscal stance,” he said.
“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.
The decline has been attributed to the resilient performance of exports particularly horticulture and coffee, strong diaspora remittances, and higher receipts from tourism and transport services. Growth of imports also slowed mainly due to lower imports of food.
On the other hand, the Kenya shilling continues to exhibit vulnerability to the US dollar as effects of heavy liquidity outweigh the upside from an improved balance of payment position and steady diaspora remittances according to Commercial Bank of Africa. “Central bank surveillance and intervention has helped contain the losses but may not avert further losses for the local currency.”