Money Supply Declined By 0.2 Percent in 2016/17 Fiscal Year, CBK Says

The Central Bank of Kenya (CBK) released its quarterly economic review for the first quarter of fiscal year 2016/17, comparing the data to the fourth quarter of the fiscal year 2015/16.

The report reviews the key macroeconomic indicators during the quarter.

The key highlights from the report include:

• Money supply declined by 0.2 percent in Q1’2016/17 compared to an increase of 3.5 percent witnessed in Q4’2015/16 attributed to a slowdown of 9.6 percent in call and savings deposits, following the reclassification of savings accounts by commercial banks after the capping of interest rates in September last year.
• The weighted average interbank rate increased by 1.0 percentage point, to 5.2 percent in Q1’2016/17 from 4.2 percent in Q4’2015/16. This has been driven by uneven distribution of liquidity in the money market, with Tier I banks trading high volumes at low rates amongst themselves, while the smaller banks have to settle for higher rates.
• The average lending rate by commercial banks declined by 4.4% to 13.8% in Q1’2016/17, from 18.2 percent in Q4’2015/16, reflecting the impact of the interest rates capping. The average deposit rate improved marginally to 6.9 percent from 6.8 percent in the same period, reducing the banks’ spread to 6.9 percent from 11.4 percent.
• The total public and publicly guaranteed debt increased by 2.4 percent during the first quarter of fiscal year 2016/17 attributed to a 2.5 percent rise in foreign borrowing and a 2.2 percent rise in domestic borrowing, a slower growth compared to 10.2 percent and 8.3 percent for foreign and domestic borrowing in Q4’2015/16, respectively. This led to an increase of 1.3 percentage points in the total public debt to GDP ratio at the end of the period to 53.8 percent, from 52.5 percent previously.

The data for the first quarter of the fiscal year indicates stabilized macroeconomic conditions despite the uneven money market liquidity distribution and rising government borrowing. The government projects the external debt and domestic debt to account for 24.1 percent and 26.7 percent of the GDP, respectively by the end of the current fiscal year.

However, there are risks associated with the changing funding patterns that could see the debt levels continue to rise, and are already above the 50.0 percent threshold set by International Monetary Fund (IMF) for developing economies.

The (IMF) released its January 2017 World Economic Outlook (WEO) report highlighting key movements in global economic growth with a focus on advanced economies and emerging economies. The table below summarizes the key changes from the October WEO report:

• Advanced economies positive change in growth will be attributed to the expected fiscal stimulus in the US that will spur GDP growth to 2.3% in 2017 and 2.5% in 2018 as well as stronger economic performance during the second half of 2016,
• Emerging and developing economies are expected to gradually stabilize from the current harsh macroeconomic conditions in large economies to attain a growth of 4.1% in 2016 and 4.5% in 2017,
• The growth forecast for China in 2017 was revised upwards attributed to the expectation of continued fiscal policy stimulus. However, continued reliance on stimulus of fiscal policy and a rapid expansion of government debt levels raises the risk of a slowdown and sustainability in China’s economic growth,
• In Sub-Saharan Africa, the annual economic growth in 2017 was revised downwards as the region continues to experience wavering macroeconomic conditions while the growth projection for 2018 was increased. However, growth in Nigeria was adjusted upwards on account of increased oil production as global oil prices set in for a resurgence, as well as improved security.