Economy to grow by 6.2pc this year, Central Bank says

Wednesday, January 29th, 2020 00:00 |
Central Bank of Kenya governor Patrick Njoroge. Photo/PD/ALICE MBURU

Zachary Ochuodho @zachuodho

Kenya’s economy is expected to grow by 6.2 per cent in 2020 up from 5.7 per cent in 2019 mainly due to a recovery in agriculture, robust private-sector credit growth and improved performance of micro, small and medium enterprises (MSMEs).

Central Bank of Kenya (CBK) Governor Patrick Njoroge said the economy in 2019 was supported by macroeconomic stability, growth of small businesses and robust service sector, adding that by the end of the year, the banking sector regulator expects to see 6.2 per cent growth.

Speaking yesterday during the post-Monetary Policy Committee deliberation, the governor said the growth is projected despite the ongoing US-China trade tensions, low global outlook, the Coronavirus that began in the central Chinese city of Wuhan and other factors that could increase the risk.

Njoroge said that in 2019 agriculture was weaker than expected, however, the policy pronouncements, including the recent policy announcements by President Uhuru Kenyatta – which if implemented along with policies beneficial to MSMEs – will lead to greater growth.

Kenya, he added, needs to increase its trade with other African countries. “Trade between Kenya and East African has grown by 23 per cent, while trade between Kenya and Africa grew by 37.5 per cent,” Njoroge said.

He said trading with African countries or regional blocs act as a stabilising effect and offer the country a sense of security that it requires in the global arena.

The governor explained that remittances in 2019 reached $2,788 million (Sh281.32 billion), so far been the largest source of foreign exchange, adding that the current account deficit is fully financed.

“Foreign direct investment is now at about 2 per cent of GDP. There is a larger proportion of Diaspora engaging in portfolio investment (investment in securities). This may lead to a concurrent stabilisation of remittances,” he said.

Njoroge urged banks to have a robust model that embraces every borrower as opposed to a one-size-fits-all as they used to do in the past.

“We do not expect that banks will go back to their old behaviour post the interest rate cap regime, which has been communicated to the public,” he said.

Serious banking

He said in the post interest rate cap, banks need to engage in serious banking not what they used to do before and urged banks to appraise CBK on what they do so as to develop a model that can serve consumers. He urged them to access borrowers individually.

The governor said the ratio of the non-performing loans (NPLs) to gross loans declined further to 12 per cent in December from 12.3 per cent in October 2019, mainly due to write-offs and aggressive loan recovery by banks.

He said a lot of transformation is taking place in the banking sector, adding: “We do not expect that banks will go back to their old behaviour post the interest rate cap regime, which has been communicated to the public”.

On payment of bills, Njoroge said the national government has cleared virtually all its current pending bills and what remains unpaid are some historical bills which are being assessed by a multi-agency team.

“Office of the Auditor General assessed that out of Sh88.98 billion pending at the counties, Sh51.3 billion was payable,” he added.

The government is the largest consumer of goods and services in the economy and many small businesses are built to service this demand.

Uhuru had last year said pending payments had negatively affected many businesses, particularly those whose bulk of capital was locked in non-payment.

 “This has also reduced overall spending and business activity in our economy,” the President had said.

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