Lower fuel costs trim Kenya’s trade imbalance
The country has continued to reap benefits from lower fuel import costs with the current account deficit contracting further to 4.7 per cent in November from 5.4 per cent in 2019.
This is according to new data from the Central Bank of Kenya (CBK) which attributes the improvement in the trade imbalance to saving from oil imports and resilient earnings from exports and remittances.
The current account is a record of the country’s transactions with the rest of the world over time which reveals net trade in goods and services along with net earnings on cross-border investments and net transfer payments.
Kenya traditionally bares a deficit current account meaning it imports more goods than it does export.
While the COVID-19 pandemic created significant disruptions in the cross border flow of goods and services, lower oil imports occasioned by a dampened demand for fuel across 2020 shrunk Kenya’s oil bill significantly.
For instance, the price of Murban- the oil variant imported into the country slacked to Ksh.1935.54 ($17.66) per barrel from a high of Ksh.72.36.86 ($66.09) in January.
The fall in crude prices in the international market has meant significant saving for the country whose one fifth of all imports are fuel.
Despite the bounce back in crude pricing internationally, Kenya is still enjoying lower costs at Ksh.5988.54 ($54.64) a barrel at present.
The lower oil import bill has been supplemented by resilient imports which grew by 2.8 per cent in the first ten months of 2020 compared to a similar period in 2019.
This from better returns from tea exports which grew by 13.2 per cent in the period from increased output along with better tidings from horticulture.
At the same time, diaspora remittances in the same period soared by 7.1 per cent to Ksh.328.5 billion from Ksh.306.6 billion at the same time in 2019 defying expectations.
The current account balance is one half of a country’s balance of payments which is a statement of all transactions made between entities in one country and the rest of the world over a defined period.
At 4.7 per cent, Kenya’s current account deficit is within the CBK’s target of 5 per cent at the end of 2020.