Country Report Kenya October 2012

Update Country Report Kenya 06 Jul 2012

The current-account deficit narrows in the first quarter

Event

Kenya's current-account deficit narrowed to US$964m in the first quarter of 2012, from US$1.26bn in the previous quarter, according to new data from the Kenya National Bureau of Statistics.

Analysis

The data also show that the current-account deficit soared to a new peak of US$4.76bn in 2011-equivalent to about 13.8% of GDP-which is higher than previous estimates. The increase mainly stemmed from a sharp rise in imports, which climbed by 23.7% year on year to US$14.78bn (on a cif basis), underpinned by higher oil prices and strong demand for both consumer goods (amid brisk credit growth) and capital goods for infrastructure projects. Exports, by contrast, grew more slowly, by 11.3% to US$5.75bn, thereby pushing up the merchandise trade deficit by one third to US$9bn.

At the same time, the invisible surplus on services, income and current transfers slipped by 5.6% to US$4.27bn in 2011. Net services shrank by 15.9% to US$2bn, despite growth in tourism, because of a sharp rise in outflows, although this was partly offset by a 9.1% rise in current transfers (principally remittances) to US$2.17bn. The current-account deficit in 2011 was adequately covered by capital and financial inflows, although one-third of the sum fell into the category of errors and omissions, making it hard to determine the precise sources.

Despite the steep rise for the whole of 2011, the current-account gap narrowed from a peak of US$1.44bn in the third quarter, to US$1.26bn in the fourth quarter, and continued declining in the first three months of 2012. This reflects a slowdown in import growth in the final quarter of 2011-from US$3.9m in the third quarter to US$3.8m in the fourth quarter-in response to stringent monetary tightening, but edged up to US$3.9bn in January to March 2012.

Moreover, the invisible surplus widened in the first quarter of 2012, jumping by 24.7% to US$1.38bn, underpinned by improved services and current transfers inflows.

Current-account balance
(US$ m)
 2011    2012
 Year1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr
Exports (fob)5,7541,4361,4401,4751,4031,554
Imports (cif)14,7773,4753,5783,9003,8233,902
Trade balance-9,023.0-2,039-2,138-2,425-2,421-2,348
Services (net)2,030490.0471.0473.0597.0796.0
Income (net)64.079.0-8.0-23.017.0-23.0
Current transfers (net)2,171541.0539.0540.0552.0611.0
Invisible trade balance4,2651,1101,001989.01,166.01,384.0
Current-account balance-4,757-929.0-1,137-1,436-1,255-964.0
Source: Kenya National Bureau of Statistics.

Impact on the forecast

Despite the higher than expected current-account deficit in 2011, the data for the first quarter of this year support the EIU's forecast of a decline in the shortfall to US$3.9bn in 2012, equivalent to 9.6% of GDP.

© 2012 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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