Kenya’s GDP’s growth is expected to rise to 3.8% in 2021

 Kenya’s GDP’s growth is expected to rise to 3.8% in 2021

 Recovery supported by the resilient agricultural sector, improvement in hospitality, tourism and export of tea, coffee and flowers. Also, the ongoing COVID-19 vaccination rollouts and easing of the government’s lockdown measures were cited as key factors leading to an increase in economic activities and growth in Gross Domestic Product (GDP).

Nairobi, October 12th 2021: Kenya’s Gross Domestic Product (GDP) is expected to recover to 3.8% in 2021 on account of the Country’s resilient Agricultural sector, improvement in hospitality, tourism and export of tea, coffee and flowers as well as the ongoing vaccination rollouts and easing of the government’s lockdown measures which will stimulate an increase in trade, private consumption and investment says a credit rating report.

The report done by Agusto & Company Limited, a leading Pan-African credit rating agency has affirmed Kenya’s sovereign credit rating as “B+” with a stable outlook.

Key factors that contribute to this rating include the Nation’s well-diversified economy with a resilient Agricultural sector (despite the emergence of COVID-19 and the invasion of locust during the year) as well as the Country’s position as the leading business hub within the East African Community. However, the offsetting factors include Kenya’s elevated debt levels due to its budget deficit, with a significant impact on interest burdens, thereby increasing the Nation’s vulnerability to internal and external shocks, deterioration of the Kenyan Shilling against major trade currencies as well as the marginal rise in inflation and unemployment levels in the Country.

According to Ikechukwu Iheagwam, Regional Director (East Africa), Agusto & Company Limited, “Kenya’s high total debt to GDP ratio of 70.1% in 2019/2020 stood above the International Monetary Fund’s (IMF) ceiling for developing countries of 50% and higher than regional counterparts – Tanzania (39%) and Uganda (45.7%). With a projected public debt to GDP ratio of 76.6% in 2021 and rising debt service to revenue of almost twice the IMF’s threshold, we believe that the country could attain debt distress levels, which increases her vulnerability to external shocks.”

“In January 2021, Kenya applied for a debt service suspension from its creditors – Paris Club countries, China (its biggest creditor) and other creditors – for six months ending in June. During the second quarter of 2021, the Nation sought another extension of the debt repayment moratorium for 6 months to December (which was approved). In our view, the risk of defaulting on near-term repayment obligations has elevated to moderate from low, noted Mr. Iheagwam.”

He added: “We view positively the three-year USD2.4 billion low-cost financing agreement between IMF and Kenya in February 2021 to support the Nation’s COVID-19 response and help moderate its debt service cost. In addition, Kenya is poised to receive circa $740 million from the $650 billion Special Drawing Right (SDR) allocations of the IMF in Q3’2021, which we expect will boost the Nation’s reserves. Furthermore, the continued reopening of the Nation’s economy as well as the resultant rise in commercial activities in 2021 especially the hospitality, tourism, agriculture and services sector, is expected to act as a catalyst for further recovery and growth in the near term”

The rating agency notes that the expansionary monetary policy and the repealed interest capping by The Central Bank of Kenya is likely to have a positive impact on the country’s credit market and estimates that a stronger private sector-led credit growth will be necessary to sustain high economic expansion.

The rating reflects Kenya’s resilient macroeconomic fundamentals, a diversified economy, a relatively stable local currency against major international currencies, a comfortable foreign exchange reserve buffer against short-term external shocks and Kenya’s position as the leading business hub within the EAC.

 

 

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