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Slow credit uptake, unstable private sector take toll on EA economies

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Slackening credit uptake threatens economic growth among East African countries. TEA GRAPHIC 

By ALLAN OLINGO

Posted  Saturday, April 15   2017 at  16:08

In Summary

  • On April 12, the World Bank cut its growth forecast for Kenya to 5.5 per cent, from 6 per cent, citing the slowdown in credit to the private sector, drought and uncertainties associated with the August 8 election.
  • In Tanzania, uncertainty over President John Magufuli’s policies and a slowdown in the private sector saw the World Bank review its growth forecast to 6.9 per cent, from 7.2 per cent the previous year.
  • In Uganda, the increased provisioning for bad debt has been the main driver of the drop in lending; the country saw its impairments double to 8.3 per cent in June last year, from 4 per cent a year earlier

East Africa’s biggest economies are grappling with slackening credit uptake, which now threatens economic growth in what has so far been Africa’s fastest-growing region.

Kenya’s figures for March released last week point to a contraction, for the first time in a decade, forcing the World Bank to revise growth expectations, as it has done in Tanzania.

Uganda has been on an easing path for the past year, with the Central Bank Rate being consistently reviewed from 17 per cent in April last year to 11 per cent at the policy meeting last week.

According to the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI), last month’s index indicated a contraction of Kenya’s private sector growth for the first time in a decade. It linked the slowdown to weaker demand conditions and consumer unwillingness to spend in the face of tough financial access conditions.

“For the first time since collection of the data began, the seasonally adjusted PMI dropped below the 50.0 threshold, to 48.5. That demarcates expansion from contraction,” said Jibran Qureishi, regional economist at Stanbic Bank.

Kenya: slow down in activity

“Most indicators of activity showed deceleration, pointing to weaker underlying demand conditions, exacerbated by financial constraints faced by customers,” added Mr Qureishi.

Data from the Kenya Bankers Association shows that private sector credit growth slowed down from 17 per cent at the start of last year to 4.3 per cent in December 2016.

The decline started late in 2015 after the Central Bank of Kenya toughened supervision.

On April 12, the World Bank cut its growth forecast for Kenya to 5.5 per cent, from 6 per cent, citing the slowdown in credit to the private sector, drought and uncertainties associated with the August 8 election.

In February, the International Monetary Fund reviewed the growth forecast for Kenya to 5.3 per cent, from 6.1 per cent, citing the credit slump.

“The most affected group in this credit reallocation emerging after the interest rate cap late last year is individual households and small and medium enterprises who are now having a great challenge accessing credit,” Allen Dennis, World Bank’s senior economist on macroeconomics and fiscal management, told The EastAfrican.

Tanzanian banks

In Tanzania, uncertainty over President John Magufuli’s policies and a slowdown in the private sector saw the World Bank review its growth forecast to 6.9 per cent, from 7.2 per cent the previous year.

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