A tea estate in Nandi Hills. Growth in 2013 will mainly be driven by recovery in agriculture and more stable energy supplies. FILE
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Economists, however, say currency has negative and positive impact on economy.
The strengthened shilling has lessened Kenya’s foreign debt burden by reducing its rate of growth in the past three quarters, a budget review by the Treasury has showed.
The review for up to third quarter of the financial year 2012/2013, published by the ministry of finance, shows that between June 2012 and March 2013 Kenya’s foreign debt increased to $9.9561 billion (Sh844 billion) from $9.195 (Sh780 billion).
But the pace of the debt’s growth, when broken down on a quarterly basis, has decelerated. Between June and September 2012 it grew by $220.3 million (Sh18.7 billion), which reduced to $135.7 million (Sh11.5 billion )in the next quarter (September –December 2012) and in the first quarter of this year it grew by $9.4 million (Sh797 million).
“This decrease is attributed to the strengthening of the Kenya shilling to the dollar between the period under review,” says the Budgetary review report.
The shilling gained sharply last year after having dropped to an all-time low of 107 units to the dollar in mid October 2011.
It remained stable for most of 2012 and only weakened slightly towards the March 4 General Election, touching the 87 units exchange rate before regaining to the current range of 85-84 level after the polls passed peacefully.
Economists, including the World Bank, have however said strengthening of the shilling had both negative and positive impact on the economy.
The Institute of Economic Affairs (IEA), a think tank, echoed a recent assertion by the World Bank which said that strengthening of the currency hurts exporters by making Kenyan goods more expensive in international markets.
The IEA chief executive, Kwame Owino, said in an interview that since Kenya has chosen a growth model that focuses on exporting goods, a strong shilling makes locally made goods less competitive in foreign markets.
“It becomes difficult to export goods and create jobs including in the tourism sector,” Mr Owino said.
Analysts have also said that the government needs to slow down on how much it its borrowing.
“In our view, we believe that the debt level will continue to soar, especially with the implementation of the new Constitution. In addition, based on the fact that the recurrent expenditure continues to increase, we believe there will be an overall slowdown in national development,” said a 2013 Economic Outlook report by Old Mutual Securities.
The planned sovereign bond issue is set to increase the foreign debt.
The Budgetary Review Report shows that as at March 2013, Japan was Kenya’s largest bilateral lender at $1.02 billion (Sh86.5 billion) while the World Banks’ International Development Association (IDA) and the International Fund for Agricultural Development (IFAD) accounted for $3.63 billion (Sh308 billion).
Multilateral lenders are the biggest foreign debt owners accounting for 59.9 per cent or $5.73 billion (Sh486 billion) of the debt stock, bilateral lenders accounted for 31.2 per cent or $2.98 billion (Sh252.8 billion) while commercial banks and others accounted for the remaining $850 million (Sh72 billion) or 8.9 per cent.
The World Bank has said that Kenya’s account deficit makes it vulnerable to shocks and priority to improve the country’s finances should be to export more, a sure way of making sure Kenya achieve targeted growth rates.
“Growth in 2013 will mainly be driven by recovery in agriculture and more stable energy supplies due to good rains, compensating a slowdown in tourism. Energising Kenya’s export engine will be key to creating jobs for the 800,000 Kenyans who enter the labour force every year,” said the World Bank in a May update.
Kenya’s GDP grew at 4.6 per cent in 2012 but under Vision 2030, the country’s blue print to promote the country into a middle income country in 17 years, the growth target is 10 per cent.
