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By Steve UMIDHA
Kenya’s economic growth may be holding up better than initially feared, after previous projections flatlined in the first quarter of 2023 to narrowly avoid a ‘technical recession.’
And as a result, an unexpected surge in consumer borrowing is being reported in the financial sector, with some economists now likening this to an improving business situation and a resumption in household borrowing.
It is a departure from what was witnessed in the months of February and March, when cash circulating or the amount of money sloshing outside the banking system had been in short supply.
“There has been a healthy rise in consumer credit since the turn of April in comparison to the first three months of the year. A good number (consumers) of them are buying houses, upgrading their cars and some are spending on shopping,” offers economist Peter Macharia, who also runs Jijenge Credit limited – a local digital lending firm.
He conversely notes that, when the availability of cash builds up, it tends “to look for a place to go” leading to economic boom times.
According to him, the shift has triggered a record increase in non-revolving lending in areas like auto, mortgage and school lends or education loans.
A non-revolving credit is one of the most common and readily available debt facilities among non-bank lenders favored by SMEs and individual borrowers since the nature of such loans do not have fixed or strict repayment schedule.
Instead, the borrower only pays interest on the funds that are actually used, and the credit limit can be renewed once the outstanding balance is paid down.
It is a deal Macharia says most borrowers are now willing to cut, and one that he acknowledges had slackened in the first three months of the year.
Indeed, bodies like the International Monetary Fund (IMF) seems to back his sentiments, having in April revised Kenya’s economic growth projection for 2023 upwards from 5.1 per cent to 5.3 per cent.
This means that the IMF expects the country’s economy to grow faster than had been earlier expected. It is also projecting moderate acceleration in the economy’s growth momentum to 5.4 per cent in 2024.
Tim Kipchumba, another economist, is equating the improved consumer credit growth and subsequent rebounding of the economy to dollar volume liquidity for institutional investors after a prolonged crunch which featured prominently soon after the August 2022 general elections and spiraled into the new year.
“My quick thoughts would be the dollar liquidity issue which had limited the country’s ability to grow or trade effectively,” states Kipchumba.
He however, believes that a proper ‘correction’ will hinge on how the next Central bank governor tinkers with the monetary policy prices which the apex bank uses to manage economic fluctuations to achieve price stability.
The Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) to 9.50 percent in its last sitting in March this year to counter the Kenyan Shilling currency slump as well as the rising inflation.
The local currency continues to perform poorly against global currencies like the US dollar amid diminishing foreign-exchange reserves, a deteriorating balance of payments, and rising global interest rates which have all contributed to the rising cost of debt servicing.
And while Kenya’s cost of living measure eased last month to a 10-month low on moderation in growth following the onset of long rains, concerns around the dwindling Shilling will continue to worry economists in the weeks and months ahead. It traded at 136.20 against the US dollar yesterday.
This article first appeared on People Daily