Interest controls cool steam in economy, says global firm

Central Bank governor Patrick Njoroge before the National Assembly Public Accounts Committee on August 4 /HEZRON NJOROGE
Central Bank governor Patrick Njoroge before the National Assembly Public Accounts Committee on August 4 /HEZRON NJOROGE

Kenya's economic growth outlook for 2016 has been downgraded by 0.2 percentage points to 5.8 per cent due to interest controls, a new report shows.

The FocusEconomics Consensus Forecast Sub-Saharan Africa report released on Tuesday suggests the implementation of the Banking (Amendment) Act 2016 on September 14 was likely to slow down credit to “riskier” firms and households, hurting growth.

“Slowing private sector credit growth, a wide fiscal deficit and rising political tension ahead of next year’s general elections give some reasons for caution,” Barcelona-based FocusEconomics says in its November outlook report. It uses data from leading global banks, consultancies and policy think-tanks.

The firm has consequently revised down growth projection to 5.8 per cent from last month's six per cent, but sees a slight acceleration to 5.9 per cent next year.

Credit to the private sector rose by a dismal 8.6 per cent in June year-on-year – slower than the Central Bank's target of 15.3 per cent – and dipped further to 7.07 per cent in July.

“We began to see this trend since June when it became much clearer although there was some sort of deviation earlier in the year,” Central Bank governor Patrick Njoroge said on September 21. “We need to go and investigate and see who actually has done what.”

Kenya's growth forecast, however, remains robust compared to sub-Sahara's average of 1.8 per cent, FocusEconomics says, citing infrastructure development, a recovery in the tourism sector, loosening of monetary policy and closer integration in the five-nation East African Community.

Global firms that have downgraded Kenya's growth projection are Fitch Ratings-owned BMI Research to six from 6.5 per cent last month, Standard Chartered Bank of UK ( 5.5 from 5.8 per cent), Citigroup Global Markets (5.5 from six per cent), Capital Economics of UK (six from 6.5 per cent) .

JPMorgan of the US has, nonetheless, kept its projection steady at 6.1 per cent, just like HSBC of UK (5.7 per cent), Barclays Capital ( 5.6 per cent), Washington-headquartered Frontier Strategy ( 5.9 per cent) and France's credit insurance firm Euler Hermes ( 6.0 per cent).

Others with unchanged outlook for Kenya are Economist Intelligence Unit ( 5.8 per cent), Oxford Economics (5.6 per cent) and London-headquartered research firm Euromonitor International (6.0 per cent).