AN ASSESSMENT OF THE SUSTAINABILITY OF KENYA’S
CURRENT ACCOUNT DEFICIT

Sheila Kaminchia and Samuel K. Tiriongo
Central Bank of Kenya

 

ABSTRACT

This paper puts the intertemporal budget constraint approach to the current account in the Kenyan context. The study assesses the long-run tendencies of output and consumption with the objective of determining the sustainability of Kenya’s external imbalance. Cointegrating regressions between net output and consumption are estimated, the results of which show that actual consumption trends may weaken Kenya’s current account position. The exercise was repeated using data on exports and imports and the results confirm that long-term export growth has lagged behind long-term import growth indicating that Kenya’s current account deficit may not be sustainable going forward.