Budget deficits in Kenya directly impact current account, study finds.
The study tested the idea that when a government spends more money than it earns, it also leads to a higher trade deficit in Kenya. They used data from 1980 to 2017 and found that budget deficits do indeed have a direct impact on the trade deficit. This means that when the government spends more money than it has, it can cause the exchange rate to go up and interest rates to increase, which in turn can make the trade deficit worse. The results support the idea that budget deficits and exchange rates play a big role in affecting the trade deficit in the long run.