This year holds promise for Kenya with economic growth expected to be supported by among others improved business climate and investor confidence as well as increased public spending on infrastructural development.
However, possible fiscal tightening measures and increased expenditure on debt repayments are the most likely headwinds to the outlook.
Analysts at Sanlam Investments East Africa, project that the economy will this year grow at about 5.4 percent, marginally slower than the 5.8 percent growth that is expected for 2018.
The growth during 2018 was supported by a pickup in agriculture, construction and electricity. However, possible fiscal tightening measures and increased expenditure on debt repayments are the most likely headwinds to the outlook. Government expenditure is projected to increase by 15.0 % in the 2018/19 budget.
The government has indicated that it will raise its domestic debt target from 272 billion shillings to 319 billion shillings for the fiscal year 2018/19 to bridge anticipated lower revenue collections and expensive external debt.
The interest cap regime, saw banks shy away from lending to the private sector and instead turn to the less risky government securities hence reducing the competition for government securities, coupled with the Central Bank of Kenya’s efforts to keep the rates low by rejecting expensive bids.
David Gitau, Investment Analyst at Cytonn for Macros and Fixed Income says “With this expectation, our view is that investors should be biased towards medium-term fixed-income instruments… that will continue to limit the availability of private sector credit”.
The World Bank forecasts a GDP expansion of 5.8 percent in 2019 for Kenya that will be buoyed by increased public spending on infrastructural development owing to the high demand for basic needs, improved business climate as well as investor confidence.
Gichuru Muchane, Alternative Investment Analyst at Cytonn notes “increasing investor interest, can be majorly attributed to; improved economic growth in Africa’s most developed PE markets and attractive valuations in Sub Saharan Africa’s private markets compared to its public markets and global markets.”