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Kenya’s central banker urges firms to invest after surprise rate cut

20 March 2018 Comments (0) Actualites, Africa, Economy

NAIROBI (Reuters) – Kenya’s central bank hopes its surprise interest rate cut this week will encourage firms to invest more to spur lagging economic growth, Governor Patrick Njoroge said on Tuesday.

Growth slid to an estimated 4.8 percent last year from 5.8 percent the year before, mainly due to a drought, a prolonged presidential election and a sluggish private sector credit growth.

The finance ministry expects growth to rebound to 5.8 percent this year but pressure to rein in the fiscal deficit could see the government scale back on ambitious infrastructure projects, weighing down economic output.

“It really has to be the private sector that picks that up,” Njoroge said. “We will have to re-balance away from public sector driven to private sector driven economic growth.”

Kenya’s total debt has risen to about 50 percent of GDP, from 42 percent in 2013, as it borrowed locally and abroad to build infrastructure including a new railway line from Nairobi to the port of Mombasa.

The government has pledged to cut the fiscal deficit to 7 percent of GDP at the end of this fiscal year in June, from 8.9 percent in 2016/17, and to less than 5 percent in three years.

Monday’s 50-basis-point cut in the benchmark lending rate to 9.5 percent took much of the market by surprise, with seven of 11 analysts polled by Reuters having forecast no change.

Njoroge said a cap on commercial interest rates could interfere with the aim of the easing stance of boosting credit, as banks lock out borrowers who are deemed too risky.

“We may have a perverse reaction, where indeed, the lowering of the CBR rate leads to a reduction in the level of credit,” he told a news conference. “We will stand ready to take any action to counter if it actually began to manifest itself.”

Private sector credit increased by 2.1 percent in the year to February, well below the central bank’s target of 12-15 percent.

Njoroge said the central bank is pushing commercial banks to be less careless in their lending and correctly asses the risk profiles of borrowers when writing loans.

“The point here is not just having low interest rates … the fundamental issue is to have risk-based pricing of loans,” Njoroge said.

 

(By Omar Mohammed; Additional reporting by George Obulutsa; Editing by Duncan Miriri and Andrew Heavens)

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Kenya raises $2 bln Eurobond but concerns over deficit linger

22 February 2018 Comments (0) Actualites, Africa, Economy, Infrastructure, Politics

NAIROBI (Reuters) – Kenya shook off a downgrade and the loss of access to an IMF standby credit facility to raise a $2 billion dollar bond at competitive yields, but market participants said on Thursday it still needs a credible plan to tackle its fiscal deficit.

Kenya received $14 billion worth of bids. It took just $1 billion in a 10-year note with a yield of 7.25 percent, and another $1 billion in a 30-year tranche with a yield of 8.25 percent, Thomson Reuters news and market analysis service IFR reported.

“They were in line with the yield curve,” said a fixed income trader in Nairobi.

The eventual yield reflected a tightening of the initial pricing area by about 30 basis points. It was close to the comparative yields for other African sovereigns like Nigeria, the trader said.

Last week, credit ratings agency Moody’s downgraded Kenya’s debt rating to B2 from B1 while officials were in the middle of the bond roadshow abroad, angering the government.

More bad news emerged on Tuesday, after the International Monetary Fund said it had frozen Kenya’s access to a $1.5 billion standby facility last June, after failure to agree on fiscal consolidation and delay in completing a review.

“They (the government) were able to weather the knocks of the Moody’s downgrade and the IMF issue,” said Aly Khan Satchu, a Nairobi-based independent trader and analyst.

But he warned that the government needed to convince investors it has a plan to tackle the fiscal deficit.

“People are worried about debt-to-GDP ratios and they want to see a stronger language about how this will be addressed,” he said.

Kenya’s total debt is about 50 percent of GDP, up from 42 percent in 2013. It has borrowed locally and abroad to build infrastructure like a new railway line from Nairobi to the port of Mombasa.

The finance ministry has published a plan to lower its fiscal deficit to 7 percent of GDP at the end of this fiscal year in June, from 8.9 percent in 2016/17, and to less than 5 percent in three years’ time.

Satchu said it was not enough for investors. They want to see more targeted infrastructure investments that will ensure a return, and attempts to reign in a ballooning public service wage bill and other recurrent expenditure.

“We have got to walk the talk. We are not even talking the talk yet,” he said.

 

(By Duncan Miriri. Editing by Katharine Houreld and Toby Chopra)

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