IMF forecasts Kenya savings to hit 16.1pc of national output

Kenya’s national savings will rise to 16.1 per cent of GDP by the end of this year, surpassing the average for middle-income countries in Africa after years of lagging behind, according to the International Monetary Fund (IMF).

In a newly released regional economic outlook for sub-Saharan Africa, the IMF says that Kenya will be one of just eight out of the 20 countries in Africa classified as middle-income economies to record an increase in gross national savings — a measure of savings as a ratio of the GDP.

Last year, Kenya’s gross national savings stood at 12.7 per cent of GDP, which was below the average of 14.7 per cent for similar-sized economies in Africa. This year the average for these economies is expected to rise to 15.1 per cent.

The rise in savings has coincided with a drop in borrowing, with Central Bank of Kenya (CBK) data showing that the annualised growth in private sector credit dropped to 5.4 per cent at the end of August compared to 18 per cent at the end of last year.

“The trend is most likely due to reduced borrowing. In the corresponding period that the level of savings is projected to rise, we have seen a fall in credit due to higher interest rates,” said ABC Capital corporate finance manager Johnson Nderi.

The recent cap in interest rates might, however, signal a shift in this trend if more Kenyans seek credit on the cheaper terms and if banks agree to lend more.

CBK data shows that the level of deposits held in commercial banks has risen at a faster pace in the eight months to August 2016 than gross loans — at six per cent against four per cent.

Deposits in August had risen by Sh150 billion to Sh2.64 trillion, while loans were up Sh90 billion to Sh2.26 trillion.

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The linkage of banks with mobile money has also helped the level of savings in Kenya grow for the past three years, roping in the informal sector to save on platforms such as M-Shwari and KCB M-Pesa.

Mobilisation of savings is positive for an economy as it builds resilience in the financial system and improves a country’s ability to invest internally in important sectors.

“The consolidation of savings is good because it helps build a buffer in the (financial) system, making it more stable. A high savings rate also allows for financing innovation and capital formation,” said Mr Nderi.

IMF data shows that with growth this year, Kenya’s savings rate will match those of South Africa (16.3 per cent) and Ghana (16.1 per cent) and move ahead of Nigeria’s (13.1 per cent) .

Kenya is, however, in the bottom half of the 20 counties classified as middle-income countries by the IMF in savings, at 13th place.

Tanzania, Uganda and Rwanda, the other EAC countries classified as low-income, are projected to hit savings of 21.9 per cent, 16.9 per cent and 12.9 per cent by the end of this year respectively.