Customers queue for services. Banks have reduced lending after the interest rate cap. [File, Standard]
This year could be turbulent for Kenya’s economy, according to the latest report by the World Bank.
The global lender, in the Kenya Economic Update, cited decreased credit to the private sector as one the factors that will have significant impact on growth.
Credit uptake in December 2016 dipped to a 13-year low.
Allan Denis, a senior economist with World Bank, cited the CfC Stanbic Bank Kenya Purchasing Manager’s Index (PMI) which tracks business activity, noting that for the first time it dipped below the 50-point mark in March, an indication that all is not well in the private sector.
Firms are also not taking up credit, denying the economy sufficient money to spend and invest.
“There is a need to look into the slow-down on credit uptake which began well before the passage of the Banking (Amendment) Act which capped interest rates,” said Denis.
Central Bank Governor Patrick Njoroge said although access to credit has been compounded by the interest rate capping, the “connection between growth and credit might have changed.”
The update by the World Bank also indicated that benefits of cheap oil, which helped lower Kenya’s import bill, are quickly diminishing as the prices of the commodity in the global market are rising.
Inflation – the general increase in prices of goods and services – rose to a five-year high of 10.28 last month as the dry spell ravaged parts of the country, killing livestock and crops.