Thursday, Sep 29

Kenya’s Economic activities in 2019

Kenya's economy shrunk to 5.6 per cent in the first half compared to 6.4 per cent same period last year on delayed rainfall and global trade tension.

In his post Monetary Policy Committee (MPC) press briefing, Central Bank governor Patrick Njoroge said effects of delayed onset and below average rainfall affected agriculture.

He also cited continued uncertainties rising from trade tension between US and China, Brexit and geopolitical development has forced central banks world over to implement accommodative monetary policies to support growth and financial stability.

He, however, expects the economy to rebound in the remaining half of the year on good agricultural productivity supported by ongoing rainfall and sound monetary policies that are expected to support small and medium enterprise growth.

''The 2019/20 economic growth is well anchored and we expect it to hit 5.9 per cent which is more same to a projection of six per cent,'' Njoroge said.

Central Bank's comment of the country's economy mirrors that of international bodies like the World Bank and the International Monetary Fund (IMF) which downgraded the country's economic growth to 5.8 and 5.8 per cent in April and October respectively.

In September, Kenya’s National Treasury said the economy was expected to grow by six per cent this year.

The MPC Market Perception Survey shows bankers are optimistic about the country's economic prospects. Their optimism rate surged to 92.3 per cent in November compared to 87.5 per cent in September.

The optimism is attributed to among other factors, improved weather conditions, payments of pending bills by the government, growth in lending to MSMEs following the repeal of interest cap law and ongoing public investment in infrastructure.

Even so, there was reduced optimism among non-bank sector chiefs from 73 per cent in September to 64.8 per cent this December.

Apart from a drop on the economic growth, the country's current account balance rose marginally to 4.3 per cent in November from an all-time low a five-year low of 4.1 per cent in September on reduced value of exports and higher import of petroleum products.

''We continue to receive low value on our agricultural exports due to competition in the global market especially tea. This saw the current account balance widen marginally by 20 basis points in November,'' Njoroge said.

Diaspora remittance inflow remained strong supported mainly by reduced costs as banks leveraged on technology.

Rate lowered to 8.5% from 9%; first cut in 16 months; Economic expansionseen accelerating in second half of year

Kenya’s central bank cut its benchmark interest rate for the first time in 16 months as the removal of a cap on borrowing costs will make it easier for policy decisions to flow to help boost credit and economic growth.

The Monetary Policy Committee lowered the rate to 8.5% from 9% to prop an economy “operating below its potential,” Governor Patrick Njoroge said in an emailed statement. The decision was in line with estimates by three of five economists in a Bloomberg survey.

“The committee noted the ongoing tightening of fiscal policy and concluded there was room for accommodative monetary policy to support economic activity,” Njoroge said. The East African nation’s economic growth is expected to slow this year, but output will speed up in the second half from the 5.6% in the first, according to the statement.

Kenya 2

While low inflation gave policy makers scope to cut, a reduction during the rate-cap era would have locked out more borrowers from accessing credit, according to Yvonne Mhango, a sub-Saharan Africa economistat Renaissance Capital. The removal of the limiton borrowing costs that was in place for three years helped the central bank to regain more control over the transmission of policy decisions to the economy.

The central bank sees inflation risks remaining well anchored. Price growth is within the target of 2.5% and 7.5% despite drought, rising fuel costs and higher transportation and import levies.

Private-sector credit growth, which was weighed down by the cap on interest rates, is showing signs of recovery and expanded 6.6% in the 12 months through October.

The shilling weakened 0.5% to 102.043 against the dollar, its lowest in almost two weeks, while the yield on Kenyan Eurobonds due in 2024 fell by 5 basis points to 5.287% by 6 p.m. in Nairobi.

World Bank projects Kenya's growth at 5.8 pct for 2019

The World Bank has forecast Kenya's growth to hit 5.8 percent for 2019, down from 6.3 percent in 2018.

In its 12th edition of the Kenya Economic Update, the World Bank said that after a strong rebound in 2018, economic activity in Kenya moderated in 2019, primarily due to lower agricultural output and considerably weak private sector investment.

"As a result, the World Bank projects Kenya's growth at 5.8 percent for 2019 and settling at around 5.9 percent over the medium term," it said in its biannual report.

The finding indicates that the east African nation's economy expanded by 5.6 percent in the first half of 2019 which is a deceleration from 6.5 percent in the first six months of 2018.

"While challenges in agriculture account for a significant drag to growth, private investment has also accounted for a share of the deceleration," says the survey.

The report recommends further structural reforms to lift productivity durably.

"Structural reforms could include continued effort to ease barriers for SMEs growth, improving quality of education and skills development at all levels, empowering women, supporting R&D, technology adoption and digitalization," Peter W. Chacha, World Bank Senior Economist said during the launch of the report in Nairobi.

The report notes that agriculture remains a key contributor to growth accounting for at least 26 percent of gross domestic product (GDP) in the last five years.

"Nonetheless, with 83 percent of Kenya being arid and semi-arid lands, dependency on rain-fed agriculture continues to be a source of volatility to the sector's growth performance," said the World Bank.

It noted that Kenya's GDP growth is projected to expand by 6 percent in 2020 and 5.8 percent in 2021.

"The growth outlook is predicated on normal weather conditions, authorities' staying the course in planned fiscal consolidation, and limited spillover effects from the anticipated global slowdown," said the lender.

The findings indicate that favorable weather conditions should support the growth of agriculture and industry at an average of 4.6 percent and 5.6 percent, respectively for 2020-21, while the services sector is projected to continue growing at an average of 6.6 percent over the medium term.

The study says Kenya has experienced steady economic growth in the recent past, with the real gross domestic product (GDP) expanding on average by about 5.6 percent over the last five years.

It said weakening of private investment partly reflects crowding out from widening fiscal deficits and related limited access to credit by the private sector.

"The expansionary fiscal stance has resulted in the crowding out of private sector investment, an unanticipated rise in public debt, and a continuation of slower private sector credit growth," said Felipe Jaramillo, World Bank Country Director for Kenya.

The lender said that the services sector has regularly recorded higher economic growth and typically dominates in the year-on-year sector contribution to GDP growth.

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