Kenya’s economy is projected to grow by between 5.6 percent and 5.8 percent this year with inflation expected to average at 5.2 percent.
According to a 2020 Economic Outlook Report by Cytonn Investments, growth will be driven by improved private sector credit and expected recovery in the agriculture sector due to the prevailing prolonged long rains.
Nonetheless, Kenya’s debt sustainability and capacity to meet revenue targets remain key risks that could affect growth.
Kenya begins 2020 with the government expecting to pay Kshs 139 billion shillings in foreign interests in the current financial year.
Loan repayments to China’s Exim Bank for construction of phase one of SGR is also set to rise 130% to 71.4 billion shilling this year.
Cytonn Investments in its report says debt servicing remains the biggest impediment to growth as pressure to meet revenue collection target by KRA mounts.
However, Cytonn Investments say the improved private sector credit growth and expected growth in the agriculture sector will be the main drivers of the economy this year.
Inflation is expected to average at 5.2 percent which is within the government’s target range of between 2.5 to 7.5 percent.
The investment firm predicts an upward pressure on interest rates following the repeal of the interest rate cap which in effect is expected to result in increased competition for bank funds from both the private and public sectors as the Government tries to raise funds to plug in the budget deficit.
The outlook for equities remains positive due to a stable macroeconomic environment that will see a 12 percent growth in corporate earnings.
The government’s strategy to cut its spending in a bid to reduce its fiscal deficit may also affect growth.
The shilling is expected to remain stable against the dollar oscillating between 101-104 shillings due to a sufficient CBK’s dollar reserve. Cytonn projects the economy to grow by between 5.6 percent and 5.8 percent.