A Standard Chartered Global Research on East Africa economic Outlook 2020, has forecasted that Kenya’s economy will accelerate 5.8% in 2020, with private-sector credit growth receiving a boost from the loan rate cap removal and recent central bank easing.
Although the removal of the rate cap removal will not reprice higher the existing loans, a more favorable credit growth environment should boost activity, creating more business demand for borrowing, not just for working capital purposes, but for longer-term investment
A stepped-up effort to deal with delays in government payments will also help, as will the continued focus on growth-supportive ‘Big Four initiatives.
“The key test for Kenya in the years ahead will be the strength of its fiscal consolidation intent. Encouragingly, authorities have unveiled plans for further cuts to discretionary spending. Revenue administration measures are already bearing fruit, with an improved record on tax collection in the recent past.
“While rising public debt has been a key concern especially with the October 2019 raising of the debt ceiling to KES 9tn, from an earlier cap of 50% of GDP a sustained and meaningful fiscal consolidation should boost confidence. Kenya’s efforts to replace expensive debt with more affordable sources of financing are encouraging. However, revenue and expenditure measures will need to drive the effort to lower fiscal deficits,” said Razia Khan, Chief Economist Africa & Middle East Standard Chartered Bank.
Agriculture is said to be the key contributor to this growth, but with the recent locust invasion in East Africa which is already a food-insecure sub-region has raised risks to food prices. The research forecasted an average Consumer Price Index at 5.0% in 2020 from the previous 4.5% and 5.8% in 2021. However, these inflation rates would still be within the CBK’s 5% +/-2.5% targeted range.