Kenya faces dim hopes for economic growth in 2018

Tuesday January 30 2018

A KCB banking hall. The Central Bank Rate is

A KCB banking hall. The Central Bank Rate is having a negative impact on the economy as commercial institutions opt for safe lending options mainly in government securities. FILE PHOTO | NATION 

By NJIRAINI MUCHIRA
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Kenya’s prospects for better economic growth appear dim as they are bound to be overshadowed by a credit squeeze, ballooning public debt and rising oil prices, a top economist has warned.

Already, 2017 was a tough year when the country’s GDP plummeted to 4.5 per from 5.8 per cent in 2016, due to severe drought and a prolonged electioneering period. This has further dimmed any hopes for growth this year.

Standard Chartered Bank chief economist for Africa and Middle East, Razia Khan, contends that Kenya should expect a modest economic recovery this year of 4.6 per cent and 5.4 per cent in 2019, owing to factors that make it difficult for the government to undertake any tangible fiscal consolidation.

Credit growth

In particular, the inability of the Central Bank of Kenya (CBK) to stimulate credit growth to the private sector through the Central Bank Rate is having a negative impact on the economy as commercial institutions opt for safe lending options mainly in government securities.

Last week, CBK retained its benchmark lending rate at 10 per cent in a market where private sector credit growth has sunk to 2.4 per cent of GDP from a high of 25 per cent before the introduction of the interest rates capping regulation in 2016.