Investment

Sub-Saharan Economic Growth Projected To Rise To 4.0%

BY Standard Investment Bank · October 16, 2023 03:10 pm

During the week, liquidity in the money market exhibited stability, as the average interbank rate remained predominantly constant at 12.10%. In parallel, the average traded volumes witnessed an increase of 16.36%, ascending to KES 31.0bn, from the previous week’s KES 26.65bn.

The Central Bank remained supportive of liquidity-strapped entities, injecting KES 40.0bn worth of liquidity through a 7-day reverse repo purchase at a rate of 12.79%.

The chart below depicts interbank rates and traded volumes, providing a snapshot of the state of the interbank market. We observe that the interbank rates have been highly volatile over the past months, fluctuating within a band of 5.0% and 17.0%.

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While there has been a noticeable decrease in trading activity in July, it appears to have revived in the last three months to October:

Also during the week, demand for Treasury bills surged, with the Central Bank receiving an impressive total of KES 43.24bn in bids. This exceeded the projected weekly target of KES 24.0bn, resulting in an overall subscription rate of 180.15%, up from 138.11% the previous week.

On the contrary, the performance of October bonds in the primary market was relatively subdued, attracting limited interest with a subscription rate of 35.1%.

The auction raised a total of KES 6.31bn with the shorter-tenor FXD1/2023/02 recording the highest acceptance rate of 74.16%. The papers’ coupon rates are 16.97% and 16.84% for FXD1/2023/02 and FXD1/2023/05, respectively.

We observe that October’s primary market bond performance is the lowest since April, reflecting the tightened liquidity in the money market.

Furthermore, investors have exhibited a discernible shift towards Treasury Bills, primarily driven by their offering of attractive real returns relative to their tenor. See the chart below for a visual representation;

The International Monetary Fund (IMF), published the October 2023 Sub-Saharan Regional Economic Outlook, dubbed ‘Light on the Horizon?’. One of the key highlights is that the Sub-Saharan African (SSA) economic growth is projected to decline for the second consecutive year, dropping to 3.3% in 2023 from the 4.0% recorded in 2022.

There is optimism for a rebound in 2024, with growth anticipated to reach 4.0%, largely driven by strong economic performances in countries that are not heavily reliant on natural resources. Nonetheless, various risks persist, including the possibility of growth deceleration due to a slowdown in reform efforts, increasing political instability within the region, and external risks, notably stemming from China’s economic deceleration.

In addition, the National Treasury released the exchequer issues for the first quarter of FY 2023/24 highlighting that the total revenues collected increased by 10.70% to KES 537.35bn, from KES 485.40 bn over a similar period in FY 22/23. Tax revenues came in at KES 514.26bn, a 10.55% increase from KES 465.20bn for the first three months of FY 22/23.

On the other hand, expenditure increased at a slower rate of 9.79% to KES 745.80bn, from KES 679.29bn over the review period. The deficit was funded by external and domestic borrowings of KES 208.01bn, which also increased by 6.52% from KES 195.28bn in FY 22/23. See the chart below for a summary of the y/y growth;