Global shocks widen current account deficit

The current account deficit widened by 17.8 percent to Sh10.79 trillion ($4.44 billion) in the year ending July 2023 from a deficit of Sh9.16 trillion ($3.77 billion) in the year ending July 2022.

“This was on account of a faster increase in imports than exports,” noted Emmanuel Tutuba, BoT Governor, in a statement. “

BoT data further show that for several months from the end of the 2022/23 financial year, the external sector has continually experienced shortages of foreign exchange and a fast depreciation of the exchange rate due to the global challenges associated with the war in Ukraine, the residual effects of the global pandemic, and climate-related impacts.

Despite a decrease in dollar reserves, the general foreign exchange reserves remain adequate, owing to inflows of external loans and grants received by the government.

Data shows the reserves amounted to Sh12.73 trillion ($5.24 billion) at the end of July 2023, slightly below the level reached at the end of July 2022, “on account of sale in the interbank foreign exchange market to support the importation of goods and services.”

Although the gold and dollar reserves fare slightly above the country and EAC benchmarks of at least 4 and 4.5 months, respectively, they are way below the Southern African Development Community (SADC) benchmark of six months.

But the central bank says it is sufficient to cover about 4.7 months of projected imports.

Nevertheless, the external sector is expected to improve further by the end of this quarter owing to the declining pressure from global commodity prices and the easing of global financial conditions as many central banks have lessened their aggressiveness in tightening monetary policy.

“The global economy is improving but still facing some headwinds. However, there are signs of resilience and improvement over time owing to various measures the Central Bank has adopted,” added the BoT.

Goods and services worth $12.99 billion were exported during the year ending July 2023, higher than $12.22 billion in the corresponding period in 2022, driven by service receipts and non-traditional goods exports, in particular minerals.

On the other hand, imports of goods and services increased to $16.79 billion in the year ending July 2023 from $14.29 billion in the previous year.

The main drivers of the rise included white petroleum products.