Kenya GDP Growth May Plummet to 1 Percent by 2019, Investec Says

NAIROBI (Capital Markets in Africa) – Kenya’s economic growth could slow to as little as 1 percent over the next two years as credit extension in East Africa’s biggest economy weakens, Investec Prime Services estimates.

Banks reporting higher levels of souring debt and decelerating money-supply growth suggest gross domestic product expansion will plummet, according toChris Becker, frontier strategist at the Johannesburg-based brokerage. Growth was an estimated 6 percent in 2016.

Investec sees growth of between 1 percent and 2 percent by 2019, levels last seen in 2008 when Kenya struggled in the wake of months of post-election ethnic violence that left more than 1,000 people dead. The nation held another poll five years later that didn’t descend into chaos and is headed to the ballot again on Aug. 8.

“We are concerned about the fiscal risks such a growth slowdown could trigger and that it may possibly coincide with a transfer of risk from the banking sector onto the sovereign balance sheet,” Becker said in an emailed note. “Already wide twin deficits now render Kenya’s macro-economy vulnerable to either internal or external shocks.”

Annual growth in M3 money supply — a broad measure of cash in the economy — slowed to 2.5 percent in January from a 14 percent increase a year ago. Lending to businesses expanded by a feeble 4.3 percent in December, the weakest pace since at least 2005, from 18 percent a year earlier, according to central bank data. The slowdown followed stricter enforcement of banking regulation and a government decision to cap interest rates.

Investec’s growth estimate is more pessimistic than most. The International Monetary Fund forecasts faster growth at 6.1 percent this year, whileRenaissance Capital sees a more languid 4.2 percent due to drought that’s left much of eastern Africa parched.

Kenya’s currency, which has lost 0.6 percent against the dollar this year, could give up more ground and end the year at 120 shillings from about 103 currently, due to the nation’s increasingly reliance on external borrowing for budget funding, according to Investec.

“A wobble in the cyclical growth environment that leads to heightened fiscal risks could temporarily prevent the Kenyan sovereign from issuing new Eurobonds that could, in turn, catalyze a faster burn of foreign-exchange reserves,” Becker said.