Kenya’s economy is seen expanding at a faster rate in 2020 on improved agriculture due to a more favourable weather and increased credit after legal ceilings on loan interest charges were scrapped.
Economic growth has in 2019 slowed to an estimated 5.6 percent from last year’s 6.3 percent largely due to cash flow challenges for businesses due to pending bills by the national and county authorities amid delayed onset of long rainfall season which hurt farming activities earlier in the year.
This was further compounded by reduced access to credit as a result of ceilings on interest rates charged by commercial banks on loans, resulting in a scale-down in new investments, profitability and jobs.
Economists, however, see removal of interest caps on bank loans, initial positive political steps in clearing delayed payments estimated at more than Sh150 billion and improved weather stimulating economic activities in 2010.
“The main thing for me will be the fact that I would expect agriculture to have a much better year especially in the tea sector. Agriculture being such a big part of GDP will spearhead economic activity although it is still largely informal and subsistent,” Stanbic Bank economist for East Africa Jibran Qureishi said.
“We should not also discount the positive impact we will see from commercial banks potentially lending more… and that will help across the value chain in the private sector and hopefully help create more jobs.”
A consensus growth outlook based on an analysis of growth forecast from some 14 global banks, consultancies and think-tanks by Barcelona-based Focus Economics show Kenya’s economic is likely to expand by 5.8 percent next year from an estimated 5.6 percent in 2019.
“One bright spot (in sub-Saharan Africa) will be Kenya, where balance sheet issues are easing. Strong import demand (due to capital intensive-projects such as standard gauge railway), poor harvests, and elevated government spending led to wide fiscal and current account deficits in recent years, but we think that these will now narrow as fiscal policy tightens and work on costly infrastructure projects slow,” John Ashbourne, senior emerging markets economist at UK-based research firm Capital Economics said in a note on December 19.
“This will help to stabilise the debt-to-GDP ratio and fortify the country against external shocks.”
Further, the Treasury in November successfully lobbied lawmakers to raise expenditure on public projects and services by Sh73.4 billion, a development likely to spur momentum in economy because the government remains the biggest buyer of goods and services from the private sector.