Britam analysts urge State to go slow on borrowing

Britam Asset Managers Company CEO Kenneth Kaniu

Analysts at Britam Asset Managers say the Government should go slow on its borrowing to cut the budget deficit.

While releasing their Gross Domestic Product (GDP) outlook for 2016, the analysts said cutting debt levels will be key in reviving the struggling economy.

“Kenya has failed to meet budgetary targets in recent years, with actual development expenditure only achieving 66 per cent to 80 per cent of targets. This has served to compromise on GDP growth,” noted the managers in the outlook.

The asset management firm wants the Government to adopt private sector-led economic growth and also to curb against wastage of development funds.

In the last five years, Kenya’s budget deficit as a percentage of GDP has risen to now stand at 8.7 per cent, the widest in East Africa. Foreign borrowing has also increased and by end of last year, it was at 28.5 per cent to GDP.

The firm noted that while such debt level is still sustainable, the country remains vulnerable to external shocks such as soaring interest rates and currency movements.

Britam Asset Managers CEO Kenneth Kaniu said that Kenya’s performance over the last four years has been driven by strong performance in trade, real estate, agriculture and manufacturing. “Together, these four sectors generate about half the country’s GDP. But this contribution has been reducing gradually, an indication of increased diversification of country’s GDP,” said Mr Kaniu.

Sluggish Growth

The asset management firm forecasts the economy to grow at between 5.5 per cent and 6.0 per cent in 2016, driven by a strengthening shilling, inflation staying within targets and stable interest rates.

They project that inflation will average 6.8 per cent this year against last year’s 6.8 per cent. The managers see interest rates peaking in the first six months as Central Bank of Kenya tries to balance demand for credit and low interest rates. They see the shilling remaining stable over the first-half of the year but weaken gradually towards Sh108 to the dollar.

But despite the bright projection, managers warned that sluggish economic growth, uncertainty in crude oil prices and supply side shocks such as food inflation could hinder the 5.8 per cent average growth. Government’s projections are that the economy will grow at 5.9 per cent in 2015-2016, 6.3 per cent in 2016-2017 and 6.4 per cent in 2018-2019.

The firm highlighted sluggish global economic growth, uncertainty in crude oil prices and supply side shocks (such as food inflation) as the main risks to their outlook for 2016.

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