Kenya’s GDP’s Growth Is Expected To Rise To 3.8% In 2021

Kenya’s Gross Domestic Product (GDP) is expected to recover to 3.8 percent in 2021 according to a credit report done by Agusto & Company Limited that affirmed Kenya’s sovereign credit rating as “B+” with a stable outlook.

The report says the country is experiencing an improvement in Agricultural, improvement in hospitality, tourism, and export of tea, coffee, and flowers.

The ongoing vaccination rollouts and easing of the government’s lockdown measures will stimulate an increase in trade, private consumption, and investment hence supporting the growth.

The offsetting factors include Kenya’s elevated debt levels due to its budget deficit, with a significant impact on interest burdens, thereby increasing the Nation’s vulnerability to internal and external shocks, deterioration of the Kenyan Shilling against major trade currencies as well as the marginal rise in inflation and unemployment levels in the Country.

“Kenya’s high total debt to GDP ratio of 70.1% in 2019/2020 stood above the International Monetary Fund’s (IMF) ceiling for developing countries of 50% and higher than regional counterparts – Tanzania (39%) and Uganda (45.7%).

With a projected public debt to GDP ratio of 76.6% in 2021 and rising debt service to revenue of almost twice the IMF’s threshold, we believe that the country could attain debt distress levels, which increases her vulnerability to external shocks,” said Ikechukwu Iheagwam, Regional Director (East Africa).

In January 2021, Kenya applied for a debt service suspension from its creditors – Paris Club countries, China (its biggest creditor), and other creditors – for six months ending in June.

“During the second quarter of 2021, the Nation sought another extension of the debt repayment moratorium for 6 months to December (which was approved). In our view, the risk of defaulting on near-term repayment obligations has elevated to moderate from low,” noted Mr. Iheagwam.

The rating agency views positively the three-year USD2.4 billion low-cost financing agreement between IMF and Kenya in February 2021 to support the Nation’s COVID-19 response and help moderate its debt service cost.

“In addition, Kenya is poised to receive circa $740 million from the $650 billion Special Drawing Right (SDR) allocations of the IMF in Q3’2021, which we expect will boost the Nation’s reserves. Furthermore, the continued reopening of the Nation’s economy as well as the resultant rise in commercial activities in 2021 especially the hospitality, tourism, agriculture, and services sector is expected to act as a catalyst for further recovery and growth
in the near term.”