Customers wait to be served in a banking hall. The International Monetary Fund report shows that Kenyans’ savings will fall to 11 per cent of GDP this year. Photo/FILE
What you need to know:
IMF’s World Economic Outlook April 2014 says tight global financing terms to hit country’s economic prospects.
The report says countries like Kenya with large external linkages or are producers of natural resources were exposed to shocks caused by tight global financing conditions and slowdown in emerging market economies.
Kenya’s economy will find it difficult to reach the targeted seven per cent growth rate with savings taking up to 2019 to reach the desired level, a new forecast by the International Monetary Fund (IMF) shows.
IMF’s World Economic Outlook April 2014 says that the ratio of savings to the gross domestic product (GDP) was at 12.2 per cent in 2013 and forecasts it to be 11 per cent this year rising gradually to 15.1 per cent in five years’ time.
The report said countries like Kenya with large external linkages or are producers of natural resources were exposed to shocks caused by tight global financing conditions and slowdown in emerging market economies.
“Policymakers should tackle emerging risks in countries facing major fiscal imbalances, address vulnerabilities in those countries more exposed to external shocks, and foster sustainable and inclusive growth,” said the IMF report.
Kenya has been having difficulty in raising savings since the post-election violence year of 2008 when they plummeted to 12.7 per cent from 15.1 per cent in 2007.
“One of the major reasons for savings rate has to do with the people’s incomes while those who have ability to save find that the traditional savings options are not very attractive. The spread between savings and lending rates is very high,” said Geoffrey Maina, a research analyst at Old Mutual Securities.
The IMF forecasts economic growth to reach 6.5 per cent at most, half a percentage point below the target set in the second Medium-Term Plan. The report shows that inflation will likely remain within the single digit level in sub-Sahara Africa.
The average savings rate in Africa is 19.5 per cent, and is expected to be 19.6 per cent this year and 19 per cent through to 2019.
Mr Maina said that the high spending by the State was also reflective of the individuals’ low savings, and two combine to ensure the country has little funds for investments.
“Even some of the investment options here in Kenya have fluctuating returns, so people still don’t invest in them and end up just spending money on food, housing and transport,” he said.
The poor savings culture has translated to low investment levels at 20 per cent of incomes, making the economies more susceptible.
The IMF estimates Kenya’s economy grew by 5.7 per cent in 2013 and will grow by 6.6 per cent this year and then plummet to 5.5 per cent in 2015.
Kenya is seen as linked to the rest of the world through trade with its imports far exceeding its exports, the stock market and foreign direct investment. The Nairobi Securities Exchange is highly supported by foreign investors.
The US Federal Reserve has scaled down its bond-buying programme to only $55 billion per month from $85 billion, signalling that the easy money that has oiled the global economic machinery in the recent years would taper.
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