The Central Bank of Kenya is forecasting a better performance for the country’s economy, putting behind months of electoral campaigning and uncertainty that caused it to fail on a Eurobond launch earlier this year.
Kenya swore in its new president on September 13, ending uncertainty about its political future.
Now, banking regulators say the peaceful leadership change has coincided with stabilization in global staple food prices, which could kickstart the economy.
Central bank governor Patrick Njoroge told Kenyan lawmakers this week that the economy is expected to remain “strong” this year, despite weaker global growth and economic shocks unleashed by the Russia-Ukraine war.
“Economic growth is expected to remain strong in 2022. Palm oil, DAP fertilizer and wheat prices have all fallen,” said Dr. Njoroge at an induction session for new MPs.
“Oil prices have weakened but remain volatile,” he added.
Kenya’s economy has been through lean times. It has seen its foreign exchange reserves dwindle, while food and fuel prices have risen, its shilling has depreciated and the creditworthiness of the private sector has plummeted.
The economy is also burdened with debt, which now totals $70 billion.
In June, the government canceled a US$1 billion euro bond issue due to turmoil in global financial markets. President William Ruto has scrapped fuel and cornmeal subsidy programs to ease growing government spending pressures.
Researchers from Cytonn Investments found that the government’s increasing debt accumulation has not translated into economic growth, as more than 40 percent of collected revenue has been used to pay down debt.
Kenya’s national debt more than quintupled from Ksh 1.6 trillion (US$13.33 billion) in May 2012 to Ksh 8.6 trillion (US$71.66 billion) in May 2022.
Cytonn noted that the national debt has grown at a compound annual growth rate of 18.2 percent over the past 10 years, compared to a compound gross domestic product growth of 3.9 percent over the period.
“The rise in debt is not reflected in GDP growth,” Cytonn Investments said in a Sept. 11 market report.
accumulation of debt
Mounting debt has put pressure on the central bank’s foreign exchange reserves and further undermined the value of the shilling, which has been floating around Ksh120 against the US dollar.
“Kenya’s broader business environment continues to be weighed down by heightened inflationary pressures stemming from supply chain constraints and local currency depreciation,” said Cytonn Investments.
“The recovery of the private sector business environment in Kenya depends largely on how quickly the global economy stabilizes and how quickly inflationary pressures ease,” she added.
Kenya’s GDP grew by 6.8 percent in the first quarter of 2022, compared with growth of 2.7 percent in the same period last year.
However, headline inflation accelerated for six consecutive months to 8.5 percent in August from 8.3 percent in July, mainly due to high fuel and food prices.
Loan disbursements to major sectors of the economy fell to 2.5 percent between April and June, compared to 4.1 percent in the previous quarter.
Elevated credit risk has led to an 8.6 per cent increase in gross non-performing loans to Ksh 514.4 billion (US$4.28 billion) in June 2022 from Ksh 473.7 billion (US$3.94 billion) in June 2022 March 2022.
“This is largely due to the deteriorating business environment as a result of increased inflationary pressures emanating from imported inflation bills,” CBK said.
“Looking forward, we expect the business environment to remain subdued given ongoing supply chain bottlenecks, which continue to drive up the cost of inputs.”