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Kenya Current Account Deficit to Narrow to 4.3% of GDP in 2019

The Kenyan economy plunged at an unprecedented rate in the second quarter of the year.

The Port of Mombasa

Kenya’s current account deficit is expected to narrow to 4.3 % of the gross domestic product in 2019 from 5.0% attributed to a foreign exchange market that has remained stable according to the Central Bank.

“The current account deficit is expected to narrow to 4.3 percent of GDP in 2019 from 5.0 percent in 2018.,” Governor Patrick Njoroge said after the Monetary Policy Committee held its benchmark rate at 9.0%.

This is a change from what Dr. Njoroge had said in September that the current account deficit would remain steady at 5 percent completely financed by foreign flows during the 5the Annual East Africa Investor Conference organised by Renaissance Capital.

In May, it had said it would narrow by 4.8%.

Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

Njoroge said the current account deficit narrowed to 4.1 percent of GDP in the 12 months to September 2019 from 5.1 percent in September 2018. 

“This largely reflected strong receipts from transport and tourism services, resilient diaspora remittances and lower imports of food and SGR-related equipment,” said the chair of the Monetary Policy Committee on Monday after lowering the Central Bank Rate to 8.5% for the first time since July 2018. 

The International Monetary Fund (IMF) said the removal of the interest caps will provide greater flexibility for monetary policy.

“The current account deficit has narrowed, and foreign exchange reserves are adequate. Credit growth has remained low (6.6 percent year-on-year in October) but is expected to rise steadily because of the recent elimination of interest rate controls and the deployment of innovative credit products targeting small enterprises. The staff welcomes these reforms, which will support higher and more inclusive growth,” said the IMF Mission team that had visited the country from November 18.

CBK said current foreign exchange reserves, which currently stand at USD8,794 million (5.5months of import cover), continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market. 

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