Most chief economists are upbeat about the prospects for a sustained rebound in economic growth following the formation of a broad-based government anticipated to help tackle the country’s problems through a common approach.
Those who spoke to Citizen Digital now expect moderate to strong growth for the remainder of the year, but highlighted the escalating challenges confronting businesses and policy-makers which they said will need to be addressed by the new cabinet appointees.
Economist Peter Macharia who is also the CEO of micro–lending firm Jijenge Credit, welcomes the move, saying it is an ambitious and comprehensive reform for the country’s economic governance framework since the aftermath of the Gen Z protests.
“I would now expect a new medium-term fiscal structural plan from the newly appointed figures which will design and present plans setting out their fiscal targets, priority reforms and investments, and measures to address any possible macroeconomic imbalances during a fiscal adjustment period,” said Macharia in an interview.
Those sentiments were shared by Iverson Ongira, another economic forecaster who noted that the arrangement will also spell out a timeframe within which, through a combination of fiscal adjustments, reforms and investments, the country’s debt level is put on a sustainable downward path.
Available data shows that Kenya’s staggering US$80 billion in domestic and foreign public debt accounts for nearly three-quarters of Kenya’s entire economic output, according to a from the United Nations Conference on Trade and Development. Interest payments alone are eating up 27 percent of the revenue collected.
These factors, according to Macharia “will need proper address from the new Treasury Cabinet Secretary, and related ministries.”
“Integrating fiscal, reform and investment objectives into a single medium-term plan will help to create a coherent and streamlined process. This new expected fiscal surveillance process will be embedded in the existing ones, which will remain the central framework for economic and employment policy coordination,” said Macharia.
Ruto’s turnaround may have temporarily quieted protests, but it leaves the country’s finances more precarious than before.
For instance, Macharia notes with concern the sustained high cost of borrowing in Kenya today which has been going up since October last year, when it was at 10.50 per cent, before consecutive raises. “This means banks have had to adjust their interest rates upwards, pushing the cost of borrowing beyond the reach of many.”
Stock market or bond markets are going to have to figure out in real time what the new political formation stands for, according to Macharia, including on issues such as credit policies, tariffs and the potential expiration of tax cuts.
Indeed, Macharia says that with a ‘settled government’, more Kenyans will be keen to borrow to repay their debts or expand their businesses going forward, pointing to the extent hard economic times has pushed many to the wall.
The rate at which consumers apply for loans has been higher in the last few weeks according to him, with as many borrowers taking credit facilities majorly for consumption.
Indeed, lending to the private sector by commercial banks grew by four percent in the year to June 2024 compared to 13.9 percent at the beginning of the year, the slowest pace in five years, hurt by the effect of a stronger shilling on foreign currency loans and reduced borrowing capacity by businesses and households due to higher interest rates.
This is according to data from the bank’s Monetary Policy Committee (MPC), which on Wednesday eased the base-lending rate by 25 basis points to 12.75 per cent, showing credit to the private sector grew by four percent, just slightly above 3.7 percent reported between September 2016 and November 2019.
