Forget economic growth, focus is on survival – Kenya Bankers Association


Forget economic growth, focus is on survival - Kenya Bankers Association

In Summary

  • The Bankers association recommends the implementation of financial regulation measures and the introduction of non-conventional monetary policy initiatives such as quantitative easing to spare the country from seeing the worst of the pandemic.
  • The severity of the crisis is expected to exceed the fall out from 2008-2009 global financial crisis to characterize slow credit uptake and accompanying weak demand.
  • Latest data from the Kenya National Bureau of Statistics (KNBS) shows economic growth was already on the backfoot as of the third quarter of 2019 when output contracted to 5.1 percent from 5.6 per cent in the second quarter.

Bankers through their representation in the Kenya Bankers Association (KBA) have called for the trading of discussion on growth with survival as the Covid-19 pandemic sweeps through the country.

According to the KBA Economic bulletin for the first three months of the year, concerns have switched to the containment of the virus and away from weakening growth as was characterized in much of 2019.

“Then our concerns were on one hand, a weak global economy with an evident disconnect between rosy headline growth numbers and weak demand at household and enterprise level,” noted KBA Director of Research and Policy Jared Osoro.

The Bankers association recommends the implementation of financial regulation measures and the introduction of non-conventional monetary policy initiatives such as quantitative easing to spare the country from seeing the worst of the pandemic.

Moreover, the banking sector report underlines finance as an integral part of addressing the economic fallout to encompass the support of the medical chain and services.

“At business levels, the transmission channels such as costs need to be understood so that appropriate remedial proposals can be formulated to help minimize such costs,” notes the report.

The report sees a hit on the local economy including credit risks elevation from resulting credit crunches and job redundancies from severe supply chain disruptions.

The severity of the crisis is expected to exceed the fall out from 2008-2009 global financial crisis to characterize slow credit uptake and accompanying weak demand.

Bankers see themselves as the second line of defence even as they remain weary of shortcomings in spurring demand and greater asset value deterioration.

“Whereas the supply side may be willing to provide credit, the demand side may remain weak,” adds the report.

Private Sector Credit growth stood at 7.7 per cent at the end of February while the sector’s non-performing loans (NPLs) stood at a record high 12.7 per cent at the end of the same period.

The National Treasury has since revised its economic growth projection to a lesser three percent in addition to cutting its revenue collection targets by an average Ksh.20 billion a month.

With 90 percent of the country’s revenue base arising from taxes, KBA warns of growth in public debt and accompanying implications to call for tighter fiscal policies by the National Treasury.

Meanwhile, weaker expectations of Forex earnings from tourism and remittances are expected to impact the country’s balance of payment position leading to a weakening of the nominal exchange rate.

Already, the local unit has shed 3.3 per cent of its value in the first quarter of 2020 and closed Tuesday’s trading session at a weaker valuation of Ksh.106.47 against the US dollar.

Latest data from the Kenya National Bureau of Statistics (KNBS) shows economic growth was already on the backfoot as of the third quarter of 2019 when output contracted to 5.1 percent from 5.6 per cent in the second quarter.

Agriculture productivity fell to 3.2 per cent from 6.4 percent in Q3 2018 as productivity of crops such as tea took a hit from erratic weather conditions.

Manufacturing output was down to 1.5 per cent from 4.6 percent with significant declines in cement and sugar production.

The energy sector shrunk to 4.9 per cent from 7.8 percent while construction and transport narrowed to 6.6 per cent and 7.1 per cent.

To contain the extent of the pandemic’s economic impact, the National Treasury has moved to insulate local output through the 2020, Tax Laws (Amendments) Bill while the Central Bank of Kenya (CBK) has implemented policy measures to boost liquidity including the cutting of both the Central Bank Rate (CBR) and the commercial bank reserve rate (CRR).

Even so, the KBA report warns the containment policies may fail at withstanding the storm.

“Hope is not a forecast, we can only trade growth for survival if our diagnosis of current circumstances is to be considered credible,” added Osoro.

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Story By Kepha Muiruri
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