East African states can expect a slowdown in economic activity,
with the World Bank forecasting Kenya’s economic growth at 4.9 per cent
this year, compared with 5.8 per cent in 2016.
Tanzania’s growth is expected to decline to 6.5 per cent, from 7 per cent in 2016.
Uganda, Rwanda, Burundi, Somalia and South Sudan are also expected to face a contraction in economic activity.
The
World Bank cited drought, weakening private sector investment,
declining credit to productive sectors, insecurity and political
tensions as key risks to growth.
The Bretton Woods
institution says Kenya’s move to introduce interest rate caps will not
solve the problem of reduced credit to the private sector unless the
government addresses the issue of public debt and persistent budget
deficits.
The interest rate caps, it says, have only
worked to undermine the Central Bank’s independence and ability to
implement its monetary policy, with adverse effects on the growth of the
economy.
But it acknowledges that the decline in credit started before the implementation of the rate caps.
“In
this regard, there is a need to carry out a deeper set of macro and
microeconomic reforms to improve credit access and financial inclusion,”
the Bank says.
“Reforms that strengthen consumer
protection and increase financial literacy are essential to address
predatory lending,” it adds.
Private sector credit
growth fell from about 25 per cent in mid-2014 to 1.6 per cent in August
2017— its lowest level in over a decade
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