Kenya’s Inflation to drop as credit to private sector expected to rise

From left: Stanbic Bank's Head of Global Markets Bethuel Karanja, Acting Head of Personal and Business Banking Ben Wandawanda and Regional Economist Jibran Qureishi during the release of Kenya’s 2018 economic outlook in Nairobi yesterday. [Wilberforce Okwiri, Standard]

The Government needs to invest in industry and agriculture to ensure people feel the impact of a growing economy, a top economist has said.

Stanbic Bank Regional Economis for East Africa Jibran Qureishi said while the economy is expected to grow by 5.6 per cent this year and six per cent in 2019, it will take a shift in policy for the benefits to trickle down to the mwananchi.

“It is time Government rethinks its policy and instead of the emphasis on infrastructure, ensure the extra capacity created goes into agriculture and industry; these are the sectors that create jobs. GDP should not just be figures,” he said at an economic outlook briefing in Nairobi yesterday.

After a rough year burdened by high inflation, drought and election tension, Kenya is expected to bounce back in coming months.

Mr Qureishi said inflation is likely to drop to 4.4 per cent from eight per cent. Inflationary threats, however, lie in the oil prices, which are expected to range between $60 (Sh6,200) and $70 (Sh7,200) a barrel.

Last year credit to the private sector completely dried up, which played a major role in slowing down the economy.

Increase lending

Qureishi says banks will increase lending although the growth may not be meaningful since they are still adapting to the new accounting standards, IFRS9, and are still suffering from high non-performing loans.

“Last year we saw banks compete for the premium borrower like manufacturers who did not see a major decline. However, we also saw that these borrowers were still impacted by third parties like their suppliers and suppliers’ clients,” he said.

The economist said the interest rate cap complicated things for banks and he expects it to be reviewed or repealed this year.

He also expects that the International Monetary Fund will ask Government to reform the law during the April review on a dollar backup loan.

The shilling is also expected to fare better against the dollar on a stronger Euro, especially as flower earnings come in as well as Eurobond receipt which will boost CBK dollar reserves.