Kenyan Officials Make Progress over Account Deficit

According to Kenya’s central bank, the current account deficit dropped to 8.5 percent of GDP in 2015, a further fall from 10.4 percent in 2014, and the deficit could grow smaller for 2016, notes Reuters. Such factors as infrastructure spending and lower oil prices have bolstered the economy, and the central bank stabilized the banking sector after one of its banks collapsed. Overall, the economy expects to grow 6.5 percent in 2016.

According to Kenya’s central bank, the current account deficit dropped to 8.5 percent of GDP in 2015, a further fall from 10.4 percent in 2014, and the deficit could grow smaller for 2016, notes Reuters. Such factors as infrastructure spending and lower oil prices have bolstered the economy, and the central bank stabilized the banking sector after one of its banks collapsed. Overall, the economy expects to grow 6.5 percent in 2016.

Kenya seems to have found a steady track, but several barriers remain. First, emerging markets have suffered serious hits in a turbulent world economy, and the East African country offers no exception. Kenya also faces additional recovery from 2015 shocks, most notably a 15-percent value loss in the nation’s currency against the dollar. Kenya will need an extra boost, which explains why the International Monetary Fund extended $668 million in credit to Kenya, but the loan remains on stand-by, and officials have yet to use any money from the credit line.

While the credit cushion will provide a nice buffer going forward, Kenya must do more to alleviate investor concerns, as many of them express concerns over a deficit running above 8.0 percent, and even though authorities lowered the deficit, the currency’s unstable track record stokes further uncertainty. With that, infrastructure spending serves as a primary reason behind Kenya’s stability and the nation may need to secure more construction ventures to improve growth.

Overall, Kenya finds itself in a much better place for several key reasons. First, the weather may prove more favorable this season, which could enhance the nation’s vital agricultural sector. In addition, the lower value of oil contributed to lower import costs, and the country holds a better position than West African counterpart Nigeria, a country that contends with economic fallout due to dwindling crude revenue. Kenya has yet to become a viable oil-producing nation and it has not suffered the same shocks as other commodity-centered economies, and the government has made the right move by focusing on development.

Despite the high deficit, infrastructure growth becomes an asset, and the construction sector has gained rapid ground. Kenya partnered with China in constructing $3.2-billion worth of infrastructure projects that include roads and high-speed rail, and more projects wait on the horizon. In other sectors, the tourist industry made a speedy recovery after attacks from Somali-based terrorist organization Al-Shabaab, but security remains a lingering issue, which could constitute a destabilizing factor if such onslaughts continue.

Moreover, China’s rapid contraction creates another problem that could destabilize Kenya’s economy, but some analysts note that insufficient rainfall could signify the greatest factor to drive down future growth.