World’s leading banks, consultancies and think-tanks have
upgraded Kenya’s growth prospects for this year, citing a return to
political stability and increased agricultural output due to improved
rains.
A consensus growth outlook for May from 12
global firms’ shows the country’s economy is likely to expand by 5.5 per
cent, 0.2 percentage points higher than last month’s projection. This
is on the back of March 9 truce between President Kenyatta and
Opposition chief Raila Odinga, popularly known as the “Hand Shake”,
which has lifted investment sentiment.
The economy last year suffocated
on the weight of a biting drought in the first half, which hit farming
activities hardest and elevated political uncertainties following a
bruising presidential contest in the second half that put on hold many
investment decisions.
That, together with the
debilitating effect of a sharp drop in loans to the private sector due
to September 2016 interest caps, slowed growth to 4.9 per cent, official
statistics in the annual Economic Survey on April 25 show
But the economy is breathing freely again on sufficient long
rains since March, a boost to farming activities which account for a
third of Kenya’s national wealth – 31 per cent in 2017 – as measured by
gross domestic product (GDP).
Private
sector investments have risen to a 27-month in March as measured by IHS
Markit-Stanbic Bank composite Purchasing Managers’ Index (PMI), which
largely focuses on manufacturing and services sectors.
“Against
the backdrop of increased political stability, the economy should be
buoyed this year by higher agricultural output amid more favourable
weather conditions, an upturn in construction activity for planned
infrastructure projects, and an expansion in investment,” researchers at
FocusEconomics, a Barcelona-based economic forecast and analysis firm
that compiles the global forecast data, says in their May report.
All
analysts for the first time this year now see Kenya’s economy growing
by at least five per cent in 2018 after Standard Chartered Bank revised
upwards growth outlook by 0.4 percentage points to five per cent from
4.6 per cent previously.
StanChart’s London-based
chief economist for Africa Razia Khan during her late January visit to
Nairobi cited expectations of reduced spend on infrastructure
development this year compared to last year in projecting flat growth
for Kenya.
She also said expansion of credit to the
private sector was likely to remain depressed, adding that it will take
at least a year for the impact of a modified interest rate regime to be
felt in market.
Mr Kenyatta has made it clear the
ineffective ceilings on loan charges at four percentage points above
Central Bank Rate will be reviewed after June, without indicating
whether it will be scrapped or modified.
“The
government’s commitment to modify or even entirely scrap the cap on
commercial bank lending rates introduced in 2016, which has led to
private credit growth tumbling to all-time lows and stymied credit to
small- and medium-sized enterprises, is also pushing the growth outlook
to the upside, strengthening confidence among investors,”
FocusEconomics analysts said.
Euler Hermes of France, a
credit insurance firm, has projected the largest growth rate for Kenya
in 2018 at 6.5 per cent followed by United Kingdom’s HSBC (six per
cent), Oxford Economics (5.7 per cent), New York-based brokerage house
Citigroup Global Markets (5.6 per cent) and France’s lender PNB Paribas
(5.6 per cent).
Others are Japan’s Nomura (5.5 per
cent), Fitch Ratings-owned BMI Research (5.4 per cent), Washington-
headquartered Frontier Strategy (5.4 per cent), Economist Intelligence
Unit (5.3 per cent), London-headquartered Euromonitor International (5.1
per cent) and consultancy firm Capital Economics of UK (5.0 per cent).
The
confidence of investors in the economy is also reflected in increased
diaspora remittances that hit $210.36 million (Sh21.08 billion) in first
two months of the year and foreign inflows into the Nairobi bourse.
That,
together with reduced food import bill, which in February touched the
lowest level since April 2017, have helped the shilling appreciate over
the US dollar.
The Kenyan currency has gained 3.0 per
cent since the beginning of the year, and is seen stable in the
foreseeable future, with record $9.51 billion foreign exchange reserves
as at April 27 providing the CBK with sufficient ammunition to intervene
in case of adverse volatility.
Inflation – a measure
of growth in cost of living – has also fallen to a 63-month month low of
3.67 per cent in April, meaning the purchasing power of individuals and
firms is little eroded.
Mounting debt repayments,
however, remain a damper to growth prospects with Sh5 out of Sh10 will
be collected in total tax and non-tax sources such as fees and
commissions – ordinary revenue – going into servicing public debt.
The
Jubilee administration has ramped up spending since 2013 to build a
modern railway, new roads, bridges and electricity plants, driving up
borrowing to plug the budget deficit.
Mr Rotich
projects the gap in the Sh2.53 trillion budget for 2018-19 financial
year to reduce to Sh562.7 billion, excluding grants, from Sh626.7
billion this year. This will be funded through Sh282.5 billion external
debt, Sh276.1 billion net domestic borrowing and Sh4.2 billion from
other domestic sources.
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