NAIROBI: High interest rates and the Kenya shilling’s depreciation have damaged growth prospects of the national wealth, a section of analysts said yesterday and have forecast the slowest growth for the year.
Analysts at Cytonn Investments projected a growth of 4.9 per cent compared to last year’s 5.3 per cent. The year began with an optimistic outlook of 6.9 per cent by the government. Cytonn said in its outlook the high interest rates have slowed investments in the private sector that largely relies on loans.
Weakening of the shilling by 12.42 per cent year-through-yesterday’s 101.97 against the dollar has also hurt earnings by import-reliant manufacturing and services firms further, they argued.
Maurice Oduor, the firm’s investment manager, said banks have been chasing high-yielding government bonds and Treasury bills. The benchmark 91-day T-bill peaked at 22.5 per cent on October 22 auction before slowing to 19.5 per cent last Thursday.
This followed recent heavy domestic borrowing by the government after the Kenya Revenue Authority missed its tax revenue target for the first quarter [July to September] by Sh28 billion to Sh300 billion.
Oduor said revenues are further being hit by declining corporate earnings, a scenario also cited by head of Kenya revenue Authority John Njiraini when he appeared before parliament’s budget committee last Thursday.
“If you put all these together, you are seeing a situation where the economic environment for 2014 is tougher than that for 2014, and there is no way now we can record a better GDP growth than the one we had in 2014,” he said. Consensus by world’s leading banks, consultancies and think tanks in October is at six per cent, according to an analysis by Barcelona-based FocusEconomics.
The firm used forecasts by HSBC of the UK (5.1 per cent) , BNP Paribas of France [6.9 per cent], JPMorgan of the US (6.4 per cent), Standard Chartered Bank of the UK (six per cent) and New York-based brokerage firm Citigroup Global Markets (5.5 per cent).
Others are Fitch Ratings-owned BMI Research (6.2 per cent), six per cent each by consultancy firm Capital Economics of the UK, Washington- head-quartered Frontier Strategy and credit insurance firm Euler Hermes of France, Economist Intelligence Unit (5.4 per cent) and Oxford Economics (6.1 per cent).
FocusEconomics concluded Kenya’s growth is being driven by “expansionary fiscal policy, infrastructure improvements, low global oil prices and an expected recovery in tourism to boost growth”. The World Bank on October 15 cut Kenya’s growth forecast to 5.4 per cent from six per cent, while the IMF has hinted at a down grade to six from earlier 6.5 per cent.
“In our view, higher market interest rates in Kenya remain a key macroeconomic concern,” analysts at Standard Chartered Bank said in their monthly business sentiment report yesterday.
“While high rates support the …(shilling) and are positive for the inflation outlook, they increase the government’s borrowing costs and represent a key risk to public finances.” Standard Chartered-BMI index for October stood at 64.7, a 1.3 per cent rise from last month’s and denoting growth in the economy.
