Pending bills cut half-year growth 1pc - Central Bank

Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | NMG 

By OTIATO GUGUYU
More by this Author

Summary

• The MPC team cut the benchmark rate to 8.5 percent from 9 percent signalling banks to lower lending rates after the recent rate cap removal.
• Credit to the private sector has been sub-par for more than four years on crowding out by the government and interest rates cap, which saw banks deny small- and medium-sized business money.
• Governments have also failed to pay suppliers with counties owing Sh89 billion while the national government has Sh96.1 billion pending bills.

Huge debts owed to suppliers by the government, low credit and delayed rains have cut national output by nearly one percentage point, the Central Bank has said.

Governor Patrick Njoroge said the economy grew by 5.9 percent in the first half of the year but had a 0.9 percent output gap.

“We have tested various things looking at non-agriculture growth and we have a robust estimate which shows that the economy can actually grow faster. We can grow at seven percent without outing pressure on inflation,” Dr Njoroge told the Monetary Policy Committee (MPC) press briefing Monday.

The MPC team cut the benchmark rate to 8.5 percent from 9 percent signalling banks to lower lending rates after the recent rate cap removal.

Credit to the private sector has been sub-par for more than four years on crowding out by the government and interest rates cap, which saw banks deny small- and medium-sized business money.

Governments have also failed to pay suppliers with counties owing Sh89 billion while the national government has Sh96.1 billion pending bills.

Dr Njoroge said the National Treasury had written to ministries, departments and agencies and ordered them to clear the pending bills as a first charge, which he anticipates will release money to the economy.

The Governor was also hopeful that banks would finance the private sector after a cut in the benchmark rates for the first time since May last year.

He said that loan rates will be affordable and that banks would not go back to their ‘Wild West’ ways that led to the push to cap lending interest rates.

“There is a lot of uncertainty from the population but I want to emphasize that this time things will be different in terms of banks reaction, not the same old ways of Wild West banditry,” he said.

He said he was also banking on the current Treasury leadership to be more fiscally disciplined and reduce budget deficit in line with laid-out plans from 7.7 percent to 6.3 percent reducing the crowding-out effect.

“We were running the economy with a handbrake (rate caps) and the National Treasury was busy pushing the accelerator and we were pushing the brakes, but we now have a fiscal side that is cooperating; the handbrake is disengaged and we have an accommodating policy,” he said.

He noted that banks will not be able to bully rates upwards by preying on desperation by the National Treasury since the government can only borrow a fixed amount of Sh300 billion.