Trade deficit narrows as export earnings hit Sh1tr

Export earnings grew by 15.4 percent to reach Sh1 trillion in 2023. [iStockphoto]

Kenya’s international trade saw a significant increase in 2023 with total value of goods traded, both imported and exported, reaching Sh3.62 trillion, a 7.6 percent increase compared to 2022.  

According to the Economic Survey 2024, the growth was attributed to rising global prices for key imports like oil, along with a weaker shilling against the currencies of Kenya’s main trading partners.

Export earnings grew by 15.4 percent to reach Sh1 trillion in 2023.

This faster growth in exports compared to imports helped to narrow the trade deficit, which refers to the gap between the value of a country’s imports and exports.

The trade deficit shrunk slightly, from Sh1.617 trillion in 2022 to Sh1.6 trillion in 2023.

Kenya’s overall balance of payments position also improved in 2023. This takes into account not just trade in goods, but also trade in services, financial flows, and other factors.

The overall deficit narrowed to Sh134.8 billion in 2023, down from Sh251.5 billion in 2022.

This improvement was largely due to a reduction in the current account deficit, which reflects the net flow of money into and out of a country.

Kenya’s current account deficit narrowed from Sh694.2 billion in 2022 to Sh603.7 billion in 2023.

“Kenya’s balance of payments position improved with the overall deficit shrinking to Sh134.8 billion in 2023 from Sh251.5 billion in 2022.

This improvement was primarily driven by a reduction in the current account deficit from Sh694.2 billion in 2022 to Sh603.7 billion in 2023,” says the survey report.

“The faster growth in merchandise exports compared to imports played a crucial role in narrowing the current account deficit.”

One area that saw a decline was net financial inflows, which refers to the difference between money flowing into Kenya for investments and money flowing out for Kenyan investments abroad. These inflows dropped by 21.2 percent in 2023 compared to 2022.

“Net financial inflows declined by 21.2 percent to Sh384.7 billion in 2023 from Sh488.4 billion in 2022,” says the report.

The report also highlights Kenya’s net international investment position (IIP). The IIP reflects the difference between Kenya’s external financial assets - money owed to Kenya by foreigners - and its external liabilities, which is money Kenya owes to foreigners.

While the stock of Kenya’s external assets increased by 34.2 percent to Sh3,980 trillion in 2023, the stock of external liabilities also grew significantly by 26.5 per cent to Sh13.17 trillion.

This resulted in a worsening of Kenya’s net International Investment Position (IIP), meaning the country is a net borrower from the rest of the world.

“The net (IIP), which highlights the stock of Kenya’s external financial assets and liabilities at a point in time, worsened to a net borrowing position of Sh9,193.9 billion at the end of 2023 compared to a net borrowing position of Sh7,448.3 billion at the end of 2022.

“This was occasioned by a 34.2 per cent increase in the stock of external assets to Sh3.98 trillion, coupled with a 26.5 per cent increase in the stock of external liabilities to Sh13.17 trillion as at the end of 2023,” says the survey report.

Overall, Kenya’s trade performance in 2023 shows positive signs with growth in exports and a narrowing trade deficit.