Central Bank of Kenya (CBK) sees current account deficit rising to 5.9%

The Central Bank of Kenya (CBK) has revised its projection of this year’s current account deficit to 5.9% of GDP from 5.2% previously, citing the higher price of crude which has raised Kenya’s petroleum import bill.

This points to a tighter dollar supply in the market as the gap between outflows and inflows widens, which will put the shilling under further pressure and raise the cost of living for Kenyans.

The current account measures the difference between a country’s forex inflows and outflows, falling into deficit when outflows are higher.

The prevailing cost of crude is a major factor in determining the directing of the current account, given that petroleum products account for 17.5% of the country’s total import bill.

Oil prices, which had fallen to decades lows of $19 per barrel at the height of the Covid-19 pandemic in 2020, have now gone up to $105.30, with a significant gain coming after Russia invaded Ukraine in late February, causing supply jitters.

“The change to 5.9% is entirely driven by the higher oil prices that we are expecting. If we abstract from the higher oil prices we would be exactly where we projected before at 5.2%,” said CBK governor Patrick Njoroge after the Monetary Policy Committee (MPC) meeting last week.

Forex flows

The current account deficit ended 2021 at 5.4%, having gone up from 4.6% in 2020.

Higher imports and prices of industrial and consumer goods have also strained the country’s forex flows — with the total cost of imports up by 27.8% in the 12 months to February 2022 compared to a decline of 12.3% in the corresponding period last year.