Government’s payment of late bills and expectations for higher sales over the festive season failed to excite private sector activity that remained flat in November.
The Markit Stanbic Bank Purchasing Managers’ Index (PMI) remained unchanged at 53.2 in November from the previous month.
The index showed despite greater advertising and higher number of referrals, demand was slowest for six months forcing firms to increase inventories for inputs at the slowest pace for the nine months in November.
Companies polled said job growth remained unchanged with the slight increase driven by new orders and opening of offices.
Stanbic Bank Regional Economist East Africa Jibran Qureishi said businesses remained cautious even as they started receiving payments from the government.
"The future output sub-index still indicates that firms are cautious on activity over the coming year. The government should continue to clear pending arrears owed to the private sector in order to alleviate these constraints,” Qureishi said.
Businesses have struggled with cash flow issues with the county government owing suppliers Sh89 billion while the national government owed Sh96.1 billion.
The government has since ordered all ministries departments and agencies to pay suppliers as a first charge to their budgetary allocations and withheld disbursement of cash to 15 counties until they clear their bills.
The interest rate cap repeal in November is also expected to raise credit access in the private sector and boost subpar economic growth. However, Qureishi said the transmission may be gradual given the high levels of default may constrain banks from loosening purse strings.
“The private sector will indeed be in a much better position than it currently is or has been for the past two and a half years. To recall, one also must acknowledge that the rise in arrears owed to the private sector has somewhat contributed to sticky non-performing loans in the banking sector,” he said.