NAIROBI: Kenya is likely to take a hit economically from the United States’ Federal Reserve rate hike expected next week, according to a report released yesterday. The Economic Insight: Africa Q4 2015, published by the Institute of Chartered Accountants in England and Wales, ranks the country as the sixth most vulnerable economy in Africa should the US Fed raise the cost of borrowing as is widely expected.
“Kenya ranked sixth position in terms of vulnerability, scoring just under 250 points out of 300. This can be attributed to the nation’s current account deficit, which stands at 10.4 per cent,” the report states.
If the rate is increased for the first time in over a decade, foreign investors are likely to flee from emerging markets to safer assets. ICAEW gives a score using three measures, which include a country’s current account balance, growth in private sector credit, and the ratio of foreign debt to reserves.
These indicators are harmonised to provide an overall vulnerability score for each economy. The higher the score, the more vulnerable the economy to the rise in the US Federal Reserve rate. According to the report, Ghana emerges as the weakest economy with a score of 273, followed by Seychelles and Guinea in third place.
Tanzania and DRC ranked position four and five, respectively. The report states that Botswana, Gabon, Swaziland and Nigeria are at a lesser risk of suffering when imports become more expensive in the face of a stronger dollar because they have current account surpluses.
“Kenya would be well placed to anticipate the possible effects of US monetary policy when planning for economic growth,” said Michael Armstrong, regional director, ICAEW Middle East, Africa and South Asia.
Last week, Central Bank governor Patrick Njoroge said Kenya’s economy is resilient and has enough foreign exchange reserves to withstand any shocks from a rate increase by the US Federal Reserve.
