Rotich cuts growth prospects citing tighter monetary policy, El Nino

The Treasury has further trimmed Kenya’s 2015 economic growth forecast due to tighter monetary policy and the potential impact of the El Nino weather which has brought heavy rains, signalling a slowdown in business activity and job creation.

Treasury secretary Henry Rotich said Wednesday said Kenya’s growth would be in the range of 5.8 to six per cent. The government had already downgraded its forecast to six per cent in October from the 6.5 to seven per cent it originally predicted.

The reduced economic activity looks set to dim corporate Kenya’s ability to generate profits in what could ultimately depress companies’ ability to hire more staff and up the wages of employees.

Official data shows that Kenyan companies have trimmed their payrolls or kept them flat in the first quarter of the financial year that started July, worsening the labour market and slowing down tax revenues growth.

The revised forecast, however, means growth will still be higher than last year’s 5.3 per cent and 4.7 per cent in 2013.

Kenya’s economy has experienced turbulence resulting from budgetary shortfalls and a weaker shilling which has shed 13 per cent of its value to the US dollar since the beginning of the year to trade at 102.

The weakening of the local currency saw the Central Bank of Kenya raise its policy rate by three percentage points in June and July, signalling a higher cost of loans in order to tame inflation and strengthen the local unit.

The government’s recent increased borrowing from the domestic market saw interest rates rise sharply, risking slowing down private sector activity.

Mr Rotich Wednesday said the economy’s flagging fortunes will prompt a review of government spending and reduce borrowing. This will lead to budget cuts on non-essential items like travel, hotel conferences and car expenses.

“The measures will be reflected in the supplementary budget to be taken to Parliament soon,” he told a press briefing in Nairobi.

Shilling

The World Bank last month also cut Kenya’s 2015 growth projection to 5.4 per cent, lower than the previous estimate of six per cent, citing a volatile shilling, weak revenues and sluggish exports.

READ: Treasury, World Bank downgrade Kenya growth outlook

The ongoing El Nino rain has washed away several roads and cut off some rural areas in an agriculture-based economy.

The government has been experiencing a biting cash crunch after the Kenya Revenue Authority (KRA) missed its revenue collection target by Sh28 billion in the first quarter of this financial year.

KRA says in a report that the country’s largest employers posted a paltry 3.4 per cent rise in staff costs between June and September, signalling a slowdown in hiring new staff and minimal pay increase for employees.

SOURCE: BUSINESS DAILY