Kenya easing to aid credit growth

Standard Chartered Bank Kenya CEO Kariuki Ngari

Standard Chartered Bank has released its 2020 economic growth with a projection that there will be solid growth performance in the East African Region.

In Kenya, StanChart expects the economy to accelerate 5.8% in 2020, with private-sector credit growth receiving a boost from the loan rate cap removal and recent central bank easing. The Bank also opines that a stepped-up effort to deal with delays in government payments will also help, as will the continued focus on growth-supportive ‘Big Four initiatives’.

Locust invasion

While the recent locust invasion in East Africa (already a food-insecure sub-region) has raised risks to food prices, the Bank nonetheless sees scope for further easing, potentially as early as Kenya’s March MPC meeting. Non-food non-fuel (NFNF) inflation, which features heavily in policy deliberations, still points to the absence of meaningful demand-related pressures.

“The key test for Kenya in the years ahead will be the strength of its fiscal consolidation intent. Encouragingly, authorities have unveiled plans for further cuts to discretionary spending. Revenue administration measures are already bearing fruit, with an improved record on tax collection in the recent past. While rising public debt has been a key concern – especially with the October 2019 raising of the debt ceiling to KES 9tn, from an earlier cap of 50% of GDP – a sustained and meaningful fiscal consolidation should boost confidence. Kenya’s efforts to replace expensive debt with more affordable sources of financing is encouraging. However, revenue and expenditure measures will need to drive the effort to lower fiscal deficits.”

Razia Khan, Chief Economist Africa & Middle East

In Tanzania, the bank expects a relatively robust growth of 6.5% in 2020 from 6.6% in 2019, with inflation forecast at 4.2% from a low of 3.4% in 2019. Following an easing of monetary policy in 2018-19, private-sector credit extension is starting to accelerate, having previously been in negative territory in 2017. The current account deficit will likely stay wide in 2020. While we have revised our 2019 deficit forecast to 4.2% of GDP (previous 5.6%), we see it expanding in 2020 to 4.5% (5.5%) of GDP due to higher imports. In 2019, the trade deficit increased on higher capital goods and oil imports. This was despite higher gold exports, which increased 26% y/y in the year to September 2019 due to higher prices; and the recommencement of cashew exports.