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IMF cuts Kenya’s growth rate to 1pc

By Dominic Omondi | Apr 16th 2020 | 2 min read
By Dominic Omondi | April 16th 2020

The International Monetary Fund (IMF) has revised Kenya’s economic growth projection downwards to one per cent for this year due to the adverse effects of the coronavirus pandemic.

Last October, IMF had projected that the economy would expand by six per cent on a stable macro-economic environment that included removal of interest rate controls, which was expected to spur private investment.

However, the global lender now says in its latest outlook on Sub-Saharan Africa that the pandemic is exacting “a heavy human toll, upending livelihoods and damaging business and government balance sheets”.

A growth of one per cent would be Kenya's lowest in 18 years and delays further the country’s ambitious goal of registering double-digit growth. The last time Kenya recorded worse growth in gross domestic product (GDP), a standard measure of economic performance, was in 2002 when total output grew by 0.5 per cent.

IMF expects the Sub-Saharan economy to contract by 1.6 per cent this year - the worst reading on record.

A number of economic institutions have had to revise Kenya’s growth prospects following the outbreak of the novel coronavirus, which has crippled a number of key sectors.   

Central Bank of Kenya expects the economy to grow by 3.4 per cent this year, down from an earlier forecast of 6.2 per cent.  

A disruption in global supply chain will hit Kenya hard following stringent containment measures by its trading partners that have enforced travel restrictions.

One of the red spots for Kenya, IMF said in the bi-annual report, is the tightening of global financial conditions as it is among the few countries in the region that have issued Eurobonds.

Kenya has for the last three years entered the international capital market to issue dollar-denominated sovereign bonds to refinance maturing debt and budgetary support.

However, with the pandemic, the risk premium of African countries bonds - which is determined by looking at the difference between the yield on a country's bond issue and the yield on a comparable bond issued by a benchmark country such as the United States - has widened.

This difference is known as the sovereign spread and the wider it is, the riskier the country’s issued bond.

Sovereign spreads in the region, noted the IMF, have increased by about 700 basis points since February 2020 and reached all-time highs, with the largest rise seen in oil exporters

“The sharp tightening of global financial conditions reduces investment flows to the region and hampers its ability to finance spending needs to deal with the health crisis and support growth," said the global lender.

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