GDP expected to hit 5.7pc despite debt burden

Written By: Grace Maina

Despite a debt increase, Kenya’s Gross Domestic Product (GDP) is expected to reach 5.7% up from 4.9% last year, according to the Institute of Chartered Accountants in England and Wales (ICAEW’s) latest report.

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According to the Economic Insight, Africa Q2 201 launched on Tuesday, the accountancy and finance body says the Purchasing Managers’ Index (PMI), jumped to 56.4 points in April 2018 from last year’s all-time low.

The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the economic performance of key African countries inclusive of Kenya.

ICAEW’s report stated that Kenya’s agricultural, industrial and services sectors are all expected to record a stronger growth this year relative to 2017, thanks to more favourable weather conditions for the agricultural sector, stronger public investment, and an improvement in business sentiment.

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Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia says that Kenya’s projected GDP growth points to solid economic recovery by the country’s key sectors.

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“The government needs to build resilience across key sectors to maintain this positive momentum,” he added.

According to the report, the pace of public debt accumulation and lack of a clear communication strategy regarding the government’s plan to address deficits, have raised concerns about the sustainability of Kenya’s public finances.

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Total public debt amounted to around KSh4.6trn by the end of last year translating to $, or nearly 60% of GDP. The amount increased by 19% in a single year and has more than doubled (in local currency terms) since December 2013.

Public debt has increasingly taken the form of commercial loans, even as the government issued the country’s second Eurobond earlier this year. The affordability of external loans will be determined by the yield demanded by investors, which in turn will be determined by perceptions of whether Kenya is able to keep its fiscal house in order.

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Domestic borrowing costs have been contained due to the regulatory caps on interest rates, which have increased the attractiveness of government debt on a risk-weighted basis.

However, there are expectations that the regulation will be amended or scrapped before the commencement of the new fiscal year in July. Therefore, domestic debt refinancing costs will increase going forward.

The report also notes that while investors allowed for the distracting effect of the elections, the government must improve on fiscal policy formulation and communication now that the environment is more conducive.


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