Increase Govt Expenditure to compensate for reduced Credit Growth – Analysts
The Kenyan Government intends to increase its budget on infrastructure, education, health and social safety net and preparations for the elections the 2017/18 Fiscal Year.
The National Treasury’s ‘2017 Budget Policy Statement’ states that the areas outlined ‘remains a priority so as to realise benefits and maintain positive growth momentum, create jobs, reduce poverty and inequality.”
Financial and economic analysts have projected a positive outlook on Kenya with expectations of continued policy reforms reducing government debt to cut its soaring fiscal deficit.
The Central Bank of Kenya says Kenya has been found in an age of uncertainty attributed to a lack of predictability on US policy on trade that is likely to impact it economy.
“We have adequate buffers in case of any eventuality including a USD1.5 billion standby loan facility with the International Monetary Fund to cushion. There could be some headwinds. The most significant ones still remain the external environment,” said Dr. Patrick Njoroge, CBK Governor during a media briefing.
CBK, Cytonn Investments, Britam Asset Managers projected the economy to grow by 5.7%, 5.4% – 5.7% and 5.0% – 5.6% in 2017 respectively from about 5.9 percent in 2016.
Regionally, with global uncertainty, fueled by Brexit’s potential ripple effect to the European Union, major elections in the Eurozone – France and Germany-, the anticipated US policies after the election President Donald Trump, stability in oil prices and global trade slowdown, Kenya is projected to outperform the rest of Sub-Saharan Africa over 2017-2018.
Read: US President Donald Trump Hints on Plans for Africa
BMI Research says the primary growth driver will be the continued expansion of the transport network, improvements to power generation capacity and the growing real estate sector in Nairobi underpin our very positive outlook on the Kenyan construction sector.
However, “Kenya’s real GDP growth will decelerate over the coming quarters as credit growth remains weak following the government’s cap on lending rates. Even so, the outlook for economic activity remains largely positive, and an election in August and relatively low short-term borrowing costs open the door to some fiscal stimulus to offset slower credit growth.
According to a report released on Thursday by Britam Asset Managers, the government needs to grow its expenditure by the targeted 16.4 percent this fiscal year, and achieve the expected 17.6 percent increase in revenues in order to meet the projected economic growth. The government must therefore spend to sustain GDP growth above 5.0 percent in 2017, as private sector credit growth remains subdued.
However, the report points out that economic activity is expected to slow down, 2017 being an election year. Historically, Kenya’s elections years have been associated with low GDP growth, as the polls delay private sector investments due to political uncertainty.
According to the report, other factors likely to affect economic growth include high inflation, drought, and increased global oil prices.
Heading into 2017, food inflation is expected to be the main driver of overall inflation with cost of transport and household items also going up. Matatu fares, petrol prices, Kerosene and electricity respectively will affect inflation significantly.
Read: Food Inflation Expected to Remain High