Figure 1: Current Account Balance in Kenya (2016-2022)
Source: IMF 2018, Kenya 2018 Article IV Consultation. Notes: (*) Figures from 2018 onwards are projections.
Total merchandise imports to Kenya increased to USD 17.4 billion in 2018, from an annual average of USD 15.6 billion for 2015 to 2017[1]. Exports increased to USD 6.1 billion in 2018, from an annual average of USSD 5.7 billion for 2015 to 2017[2]. The slower growth in exports has deteriorated Kenya’s current account balance, which widened from a deficit averaging -USD 4.8 billion (approx. -6.2% of GDP) for 2016 to 2018, to a deficit of -USD 5.7 billion (approx. -6.3% of GDP) in 2019[3]. The slower growth in export earnings has not been sufficient to deteriorate Kenya’s balance of payments and gross official reserves have increased.
Figure 2: Capital and Financial Account Balance in Kenya (2016-2022)
Source: IMF 2018, Kenya 2018 Article IV Consultation. Notes: (*) Figures from 2018 onwards are projections.
Kenya’s capital and financial account balance improved from a surplus (net inflows) averaging USD 5.3 billion (approx. 6.9% of GDP) for 2016 to 2018, to a surplus of USD 7.0 billion (approx. 7.8% of GDP) in 2019[4]. Kenya’s balance of payments improved from an average of USD 257.7 million (approx. 0.3% of GDP) for 2016 to 2018, to a surplus of USD 1.3 billion (approx. 1.5% of GDP) in 2019[5]. Gross official reserves increased from USD 7.6 billion in 2016 to USD 8.0 billion in 2018, and continued increasing to USD 9.2 billion in 2019[6]. During this period, Kenya experienced increasing inward FDI inflows.
Figure 3: Gross Official Reserves and Balance of Payment in Kenya (2016-2022)
Source: IMF 2018, Kenya 2018 Article IV Consultation. Notes: (*) Figures from 2018 onwards are projections.
Inward FDI inflows increased from USD 619.7 million in 2015 to USD 1.3 billion in 2017, and continued recovering to USD 1.6 billion in 2018[7]. As a result, Kenya’s inward FDI stock increased from an average of USD 11.7 billion for 2015 to 2017, to USD 14.4 billion in 2018[8]. Kenyan citizens investments abroad have been volatile as inward FDI to the country increased.
Figure 4: Inward Foreign Direct Investment in Kenya (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Outward FDI outflows increased from USD 242.0 million in 2015 to USD 256.6 million in 2017, before decreasing to USD 164.4 million in 2018[9]. As a result, Kenya’s outward FDI stock increased from an average of USD 1.5 billion for 2015 to 2017, to USD 1.9 billion in 2018[10]. These capital flows have improved Kenya’s balance of payment but deteriorated the country’s net international FDI position.
Figure 5: Outward Foreign Direct Investment from Kenya (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Kenya’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been volatile as inward FDI inflows increased. Kenya’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 10.8 billion (approx. -15.5% of GDP) for 2015 to 2017, to net liabilities amounting -USD 14.0 billion (approx. -16.8% of GDP) in 2018[11].
Figure 6: International Foreign Direct Investment Position in Kenya (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels Kenya’s foreign liabilities remain sustainable as a proportion of GDP. Given the relatively narrow domestic capital markets, Kenya should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on agriculture-based exports. Nevertheless, Kenya’s balance of payments surplus is projected to moderate to a smaller surplus in the medium-term, which is projected to support growth of gross official reserves.
Improvements in inward FDI inflows should continue supporting Kenya’s balance of payments despite the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 5.7 billion (approx. -6.3% of GDP) in 2019 to an average of -USD 6.6 billion (approx. -6.2% of GDP) from 2020 to 2022[12]. Kenya’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 7.5 billion (approx. 7.1% of GDP) from 2020 to 2022[13]. Therefore, the balance of payment is projected to moderate from a surplus of USD 1.1 billion in 2020 to a surplus of USD 665.9 million in 2022, which is equivalent to an average deficit of USD 896.0 million (approx. 0.9% of GDP)[14]. Thus, Kenya’s gross official reserves are projected to increase from USD 10.2 billion in 2020, to USD 11.8 billion in 2022[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2018. Kenya 2018 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2018. Kenya 2018 Article IV Consultation, ibid.
[5] IMF 2018. Kenya 2018 Article IV Consultation, ibid. There is one relatively significant error and omission in Kenya’s balance of payments data equivalent to -USD 764.0 million in 2016.
[6] IMF 2018. Kenya 2018 Article IV Consultation, ibid.; IMF 2017. Kenya 2017 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2018. Kenya 2018 Article IV Consultation, ibid.
[13] IMF 2018. Kenya 2018 Article IV Consultation, ibid.
[14] IMF 2018. Kenya 2018 Article IV Consultation, ibid.
[15] IMF 2018. Kenya 2018 Article IV Consultation, ibid.