The gap between exports and imports widened in the year to May as Kenya bought more goods from abroad to further expose the local currency.
According to newly released Treasury data, the gap — also called the current account deficit — increased by 22.7 per cent to Sh623.2 billion (or $5.99 billion). This amounted to an actual expansion of the deficit by Sh115.4 billion (or $1.11 billion).

The deficit has eroded the value of the shilling, which has fallen a notch lower every month this year, meaning it is 13.5 per cent weaker compared to the beginning of the year. This happened as the current account deficit progressively deteriorated.

“The current account deficit worsened by 22.7 per cent to $5.992 billion in the year to May 2015 from a deficit of $4.882 billion in the year to May 2014,” said the Treasury.
It added that as “a share to GDP, current account deficit amounted to 9.8 per cent from 8.9 per cent over the same period”.

The export-import gap was caused by falling export values affecting crops such as tea, re-exports and manufactured goods. The data shows value of exported tea fell by 4.6 per cent or Sh5.3 billion ($51 million) in the period to stand at Sh110.4 billion.

The value of manufactured goods also slumped by 22 per cent or Sh15.5 billion ($149 million) in the same period to hit Sh54.9 billion ($528 million).

The value of chemicals and related products that were exported also fell by Sh3.6 billion ($35 million) to Sh44 billion while that of re-exports was down by 3.1 per cent or Sh2.5 billion to stand at Sh78.3 billion.

In total, the deficit on the goods (merchandise) account alone was Sh95 billion ($913 million).
“The deterioration (in the current account deficit) reflects an 8.0 per cent worsening of the merchandise account and a decline of 3.0 per cent in the surplus of the services account,” said the Treasury.

The deficit was mainly financed by the capital and financial account which rose by 35 per cent or Sh187 billion to stand at Sh728 billion in the year to May.

READ: Shilling feels the pressure as trade deficit rises 59pc

Analysts have fingered the deficit as the main long-term cause of the depreciation of the shilling, noting that the Central Bank of Kenya can only use artificial means to maintain the currency value.
The CBK has used the foreign exchange reserves to intervene in the market, increasing benchmark rates as well as mopping excess liquidity in order to maintain a balance between the local currency and dollar supplies.

Cytonn Investments said in its latest market report that improved liquidity and the widening current account deficit are among the chief causes of the weak shilling.

Source: Business Daily

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