Kenya’s debt exposures expected to cut 2021 growth prospects

Kenya’s growing exposure to debt is expected to trim 2021 growth prospects even as the economy rebounds from contraction in 2020.

According to economists at NCBA, the country finds itself in a fiscal straitjacket with any increased spending warranting more debt as revenue recovery continues to lag expenditure needs in the short-term.

As such, the economists expect 2021 GDP growth to stand at a lower rate of 4.9 per cent in contrast to ambitious estimates by other local and international agencies.

“The contention is not on whether we will recover. There were existing vulnerabilities characterized by a narrower fiscal space long before COVID-19 with the pandemic only serving to exacerbate vulnerabilities,” said NCBA Group Chief Economist Raphael Agung’.

“The government recognizes that there is no fiscal space to finance the level of public investment required to sustain the fight against COVID-19 at a health level and necessary infrastructure development to drive growth or an economy like ours,” he said.

The need for more debt taking is expected to raise Kenya’s public debt sustainability concerns with the debt stock having risen by a 20.7 per cent high last year.

Revenues meanwhile stood at Ksh.1.58 trillion at the end of the period representing just over 50 per cent of spending plans to June this year.

Last month, the CBK shared similar sentiments having sighted the exhaustion of both fiscal and monetary-based responses to support economic rebounding this year.

In contrast, the National Treasury, World Bank and the IMF sees a higher rate of growth this year at 7.1, 6.9 and 7.6 per cent respectively as the economy gradually re-opens following disruptions spread out across 2020.

“The reopening of schools and removal of pandemic containment measures are expected to underpin a growth rebound to 7.6 per cent in 2021, even as some sectors of the economy face continuing headwinds,” the IMF stated on Monday.

Even so, NCBA Group Managing Director John Gachora warns the lift of measures could only be temporary as COVID-19 remains an existential threat to economies in the medium term.

“There exists reason to be cautious. Economic expectations have improved but they remain temporary. The pandemic with new and even more contagious strains remains with us. Moreover, vaccine shortages will delay mass inoculations in developing economies,” he said.