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Kenya

Removal of rate cap, Big 4 projects to spur economic growth

The growth will be supported by private-sector credit growth, which has received a boost from the removal of the loan rate cap and the recent cut on central bank’s benchmark loan rate to 8.5 percent/FILE

NAIROBI, Kenya, Jan 30 – Kenya’s economy is projected to accelerate by 5.8 percent this year, a report by Standard Chartered says.  

The growth will be supported by private-sector credit growth, which has received a boost from the removal of the loan rate cap and the recent cut on central bank’s benchmark loan rate to 8.5 percent.  

Following the loan rate cap removal, existing bank loans will not reprice higher. However, a more favourable credit growth environment should boost activity, creating more business demand for borrowing – not just for working capital purposes, but for longer-term investment,” the  East Africa Economic Outlook 2020 says. 

stepped-up effort to deal with delayed payments by both the national government and county governments to businesses is also expected to boost the economy’s performance 

Additionally, a continued focus on the government’s focus on growth-supportive Big Four Agenda projects will also spur growth.  

The report however expects the recent locust invasion to be a source of potential pressure on agriculture but says creating a firm base for sustained medium-term growth will matter much more. 

Razia Khan, head of research for Africa at Standard Chartered bank, said the key test for Kenya in the years ahead will be the strength of its fiscal consolidation intent.  

According to Khan, things are however looking up after 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,” he said.  

However, public debt is still a key concern, but Khan says a sustained and meaningful fiscal consolidation should boost confidence in the economy.  

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In October last year, Kenya’s public debt ceiling rose to Sh9 trillion, from an earlier cap of 50 percent of the GDP 

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,” Khan said.  

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