Experts downplay recession fears

By Phyllis MUCHOKI

An economic slump is not likely in 2023, financial experts now agree.

Although the post-election growth surge is visibly slowing, it appears to be headed to a sustainable pace commensurate with the agricultural sector (which generates 22.4 percent of Kenya’s GDP), rather than turning negative.

Progress on economic recovery has been hampered by rising inflation cracks and a volatile political milieu, with the latter seen as a major threat to the stricken economy that is yet to shade off the effects of the ongoing war in Europe.

Similarly, hitches like the depreciating value of the Shilling against world major currencies, as well as the rising interest rates, are also a growing concern for the survival of some businesses.

“There are probably many specifics for the recent decline, but it usually comes down to supply versus demand. As the currency weakens, any person or business wants to get rid of the Shilling as fast as possible in favor of the best-performing ones,” offers Peter Macharia – a financial expert who also runs a digital lending firm Jijenge Credit Ltd.

Kenya’s economic growth is projected to remain modest this year, owing to heightened headwinds, including slower global growth and domestic interest-rate increases.

The economy is expected to grow by 5.5 percent in 2023 and above 6.0 percent over the medium term, according to estimates by the National Treasury, with that growth to be reinforced by the current administration’s bottom-up economic transformation agenda geared towards an economic turnaround and inclusive growth.

But that is yet to be felt.

“Kenyans are resilient people and some of the structural reforms being pushed by the current administration may take time to yield the desired results. But leaders must now shift to a more sustainable approach in containing the political heat to provide jobs and steady the economy,” warned Macharia.

The dissents by the Opposition coalition led by former Prime Minister Raila Odinga have not only hobbled the country’s economy but also shown early signs that they pose the potential threat to exacerbate intra-regional disarray in mutual trade and huge economic costs.

Forex trading experts like Rufas Kamau – a markets analyst with the Fx-Pesa run by EGM Securities, are now cagey and are worried that a lack of a truce between the combatant camps, as well as snowballing dollar shortage, could as well result in a possible financial market flip-flop.

“Rising interest rates and high inflation isn’t the optimum environment for investing in technology stocks and investors are worried that the bear market will continue. The Kenyan consumer is still experiencing low access to credit and unemployment is still high,” offered Kamau in his projections for the next three months to June 2023.

Shilling traded at Sh131.08 against the US dollar as of Saturday, while the inflation rate on the other hand, held steady at 9.2 percent last month. The Monetary Policy Committee also raised the Central Bank Rate (CBR) to 9.50 percent at its March 29, 2023 meeting.

Adding, “Kenya is still experiencing a strong dollar shortage as investors continue to liquidate their investments in the Nairobi Securities Exchange (NSE) to external factors and local factors such as the depreciating shilling, which is hurting their portfolios in dollar terms.”

A current-account deficit and a large external debt stock, according to Macharia, could also expose Kenya to balance-of-payments stresses, if access to external financing continues to wane.

A range of analytical approaches suggests that business investment has been subdued partly due to the effects of Russia’s invasion of Ukraine among other factors like political fights in the form of protests, whose outcomes have reduced the size of the economy and future growth.

This has seen investors turn to markets like Rwanda for instance – a fast-growing economy with a young population totaling over 12 million that continues to make great strides toward economic development.

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