OUTLOOK

Lower rainfall to hurt Kenya's economic growth - CBK

In Summary
  • In May, CBK projected the country's GDP to grow 5.9 per cent.
  • The rainfall between June, July and August will be worst than same period last year.
CBK Governor Patrick Njoroge
CBK Governor Patrick Njoroge
Image: FILE

Erratic rainfall incoming months is likely to hurt Kenya's economic growth, Central Bank of Kenya said yesterday.

Speaking during the post Monetary  Policy Committee briefing Thursday, Central Bank of Kenya governor Patrick Njoroge said the country is expected to receive lower than usual rainfall, hurting agricultural yields. 

''The rainfall between June, July and August will be worst than same period last year. This is expected to lead to low agricultural production,'' Njoroge said.

He however, failed to comment about the expected economic growth in absolute figures, saying  the economy is expected to rebound in 2021, supported by the continued reopening of the services sectors including education, recovery in manufacturing, and stronger global demand. 

In May, CBK projected the country's GDP to grow 5.9 per cent.

Early this month, World Bank said Kenya's economy will grow 4.5 per cent in 2021 and to be over five per cent on average in 2022-23.

This is a massive cut compared to the previous projection of 6.8 per cent growth, which was to be the fastest  in Africa, and a more ambitious prediction than the government's estimate of 6.4 per cent.  

The  international lender attributed  the growth to an upturn in industry supported by reopening of the economy and strong capital spending.

Nonetheless, respondents in the MPC’s Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels, were optimistic about economic growth prospects for 2021, citing vaccinations and easing of Covid-19 containment measures.

However, respondents were concerned about continued uncertainties over the pandemic, increased taxes and heightened political activity.

The low agricultural yields are expected to see a further rise in the cost of living  but the banking regulator is confident that inflation will remain within set margins of less than 7.5 per cent.

Overall inflation stood at 6.3 per cent in June compared to 5.9 per cent in May, largely due to increases in food and fuel prices.

Food inflation increased to 8.5 per cent from  seven per cent, mainly on account of higher prices of some food items such as cooking oil, beef with bones, white bread, and wheat flour.

This is attributed to price increases for imported inputs and supply constraints.

Fuel inflation remained elevated at 13.5 per cent in June and 14.3 per cent in May, mainly reflecting the impact of the rise in international oil prices on energy prices

''Inflation pressures are expected to be elevated in the near term mainly driven by increases in food and fuel prices, and the impact of the recently implemented tax measures,'' CBK said. 

Globally, economy  is expected to rebound strongly in 2021, largely supported by the ongoing deployment of vaccines, relaxation of Covid-19 containment measures, and strong policy measures.

Nevertheless, the pace of recovery of the global economy remains uneven across countries, and is dependent on the evolution of the pandemic particularly following are surgence of new variants.

Additionally, inflation in some major economies and emerging markets is rising sharply, mainly due to increases in commodity prices particularly oil, the effect of fiscal stimulus, and supply chain bottlenecks.

In the financial sector, the rate of loan defaults in the country eased by 20 basis points in two Months to July as businesses recover from negative effects of Covid-19 on economy.

According to CBK, there is great recovery in almost all economic sectors which has seen borrowers start meeting their debt obligations.

According the apex bank, the rate of non performing loans dropped decimally to 14 per cent compared to 14.2 per cent in May. 

''Repayments and recoveries were noted in the manufacturing, agriculture, trade and real estate sectors,'' CBK said.

The country recorded a growth  in private sector credit which increased to 7.7 per cent in June 2021, from 6.8 per cent in April.

Strong credit growth was observed  manufacturing (8.1 per cent),transport and communications (11.8 per cent), and consumer durables (23.4 per cent).

The number of loan applications picked up in June, reflecting improved demand with increased economic activities. 

Exports of goods  remained strong during the period under review, growing by 11.1 per cent in the first half of 2021 compared to a similar period in 2020.

Receipts from exports of horticulture and manufactured goods rose by 29.4 per cent and 45.2 per cent, respectively, in the first half of 2021 compared to a similar period in 2020.