Kenya’s Current Account Deficit Projected at 5.2pct in 2021

Kenya’s current account deficit will close the year at 5.2 per cent of gross domestic product, its central bank governor said on Tuesday.

Dr Patrick Njoroge said the current account deficit was forecast to fall to 5.2 per cent of gross domestic product in 2021, from the current 5.4 per cent in the 12 months to October 2021.

This is a 0.6 per cent points increase from 4.8 per cent recorded over the same period in 2020.

“We are on track…” he told a news conference virtually adding that “The current account is well anchored will support stability in the forex market.”

Exports of goods remained strong, growing by 10.8 per cent in the 10 months to October 2021 compared to a similar period in 2020. Receipts from exports of horticulture and manufactured goods increased by 19.1 per cent and 35.3 per cent, respectively, in the period January to October 2021 compared to a similar period in 2020.

However, receipts from tea exports declined by 6.2 per cent, partly attributable to the impact of accelerated purchases in 2020.

In addition, the Economic Stimulus Programme and Economic Recovery Strategy implemented by the Government to shield the economy from adverse effects of COVID-19 are expected to continue boosting domestic demand.

The central bank kept its benchmark lending rate at 7:00 per cent on Monday, saying its current stance was adequate with inflation expected to remain well anchored in the set range (7.5 per cent+/- 2.5 per cent).

Genghis Capital Analysts in a post MPC review, says the Central Bank Governor’s sentiments collaborate their view that the weakening of the Kenya Shilling against the USD is not being driven by private sector demand.

The shilling has depreciated by 2.93 per cent as of Nov 25.

According to Genghis Capital, this has been driven by governments activities specifically repayment of external debts. 

“Over the last five fiscal years, the Government of Kenya’s external debt service payment totalled Ksh1.14 Trn and is budgeted at Ksh 489.4 Bn in the current fiscal year 2021/22. That is large liquidity to be externalized,” they note.

Secondly, the strengthening of the USD in the global markets has seen the dollar index rose by nearly 6 per cent since May 2021.