Home ECONOMY Kenyan economy wraps up 2019 on an optimistic note – KBC

Kenyan economy wraps up 2019 on an optimistic note – KBC

by biasharadigest

In the wake of tough macro and micro-economic prospects, the Kenyan economy is wrapping up the year 2019 on an optimistic note.

However, soaring debt levels and missed revenue targets coupled with a destructive rainy season spell doom for an economy which is expected to expand by 6 per cent at the close of this decade.

Despite increased investments in infrastructure the country still faces the challenges of inadequate infrastructure, the disparity in incomes, and high poverty worsened by high unemployment never mind the glaring shocks emanating from climate change and insecurity.

Economic expansion is projected at 6.0% in 2019 before accelerating to 6.1% in 2020.

Get breaking news on your Mobile as-it-happens. SMS ‘NEWS’ to 20153

This growth is expected to be driven by improved business confidence and continued macroeconomic stability while tourism and the strengthening global economy will contribute to enduring growth.

In the year 2019, Kenya’s debt levels spiralled to almost 60 per cent of the GDP, leaving the country with no headroom to borrow more funds.

According to the Central Bank of Kenya, the country’s public debt to GDP currently stands at 59.9%, above the 50% threshold which had been approved by the National Assembly.

This forced the National Treasury to seek parliamentary approval to raise the ceiling to 9 trillion from 6 trillion shillings.

The new debt ceiling now gives the Treasury the green light to borrow money which almost matches the size of the current budget.

The country is already spending more than 40 per cent of total revenue to service outstanding debts.

The International Monetary Fund recommends a threshold of 30 per cent for emerging economies.

To deal with persistent corruption and money laundering, CBK announced the introduction of new notes in June, giving the 1000 old notes up to September before they are rendered worthless.

However, when the operation was concluded on September 30th, old series Ksh1,000 notes valued at Ksh.7.4 billion had not been exchanged rendering them worthless.

In September the leadership of the National Treasury was thrown off balance after the arrest of Cabinet Secretary Henry Rotich, Principal Secretary Kamau Thugge and other high-ranking treasury officials.

They were charged by the Ethics and Anti-Corruption Commission for embezzlement of public funds, corruption among other economic crimes.

The government plans to continue fiscal consolidation to restrain the rising deficit and stabilize public debt by enhancing revenue and reducing the cost of debt by diversifying funding sources.

Inflation is projected to be maintained at 5.5% in 2019 and 5.4% in 2020 due to prudent monetary policy.

And after three years of operation credit constraints to the private sector as a result of interest rate cap, the controversial law was finally repealed when President Uhuru Kenyatta assented to the Finance Act 2019.

The controversial law was introduced in September 2016 in the Banking Act to rein high-interest rates banks were subjecting to consumers.

An attempt to keep the controversial section 33B of the Banking Act by lawmakers was declined by President Kenyatta in October through a memorandum which asked for the repeal of the law.

However, Parliament failed to raise the required two-thirds majority to overturn President Kenyatta’s memorandum on the removal of the cap leading to its repeal.

The rate cap abolition gained support from local commercial banks as well as international lenders such as the World Bank and the IMF.

Credit flow to the private sector is expected to increase as a result.

Consequently, in November, CBK’s Monetary Policy Committee for the first time in nearly a year revised downwards the benchmark lending rate by 50 basis points to 8.50 per cent in a bid to bolster suppressed growth.

The committee noted that the economy was operating below its potential level hence the rate cut.

In a bid to meet the revenue target of 1.8 trillion shillings the Kenya Revenue Authority under the tutelage of the new Commissioner General, has become more aggressive in pursuing tax defaulters and widening the tax base.

This has seen several companies and individuals being arraigned in court to face several tax evasion charges.

In the financial year 2019/20 the taxman increased collection by 100.1 billion to Sh1.44 trillion, though the collection fell short of the Treasury-set target by Sh72.7 billion.

KRA recorded a 7.47 per cent growth over Sh1.34 trillion collected in the year ended June 2018.

In the nine months to September this year, KRA is behind collection target by close to 80 billion shillings, exerting more pressure on the country’s fiscal space.

Rating agency Fitch Ratings had in a note in May this year warned that weak growth in revenue, largely tax receipts, presented the biggest challenge to Kenya’s effort to balance its budget.

The year saw the exit of former Commissioner General John Njiraini with Githii Mburu taking charge at Times Tower.

Until his appointment in June, Mburu was serving as the taxman’s commissioner for intelligence and strategic operations.

Going forward the government expects to narrow down the budget deficit to around 6 per cent of GDP.

This is one of the conditions set by the international monetary fund for Kenya to access the 150 billion shillings standby credit facility which was suspended last year.

Treasury hopes the prevailing political stability coupled with favourable climate will spur economic growth in the year 2020.

Related Posts

Leave a Comment