CBK warns of a tougher and riskier economic outlook

CBK warns of a tougher and riskier economic outlook

The Central Bank of Kenya (CBK) has warned of a much tougher and riskier economic forecast for the 2021 as the Kenyan economy wades uncertain waters.

According to the reserve bank, the economy is stripped off part of its shock absorbers as it traverses new frontiers in 2021.

“We have now entered 2021 with minimum buffers by private sector actors, households and even government having eroded part of the shielding in 2020,” CBK Governor Patrick Njoroge said on Thursday.

“This makes building back tougher and more risky as we have to be more efficient in the use of resources. We also need to strengthen weak points to bring about a soft landing for the economy.”

While the CBK has highlighted optimism from early signs of an economic rebound, the macro-economic environment remains uncertain partly from the manifestation of second wave COVID-19 effects on sectors such as hospitality and travel.

For instance, a resurgence in coronavirus infections in Europe has weakened tourism prospects with national carrier Kenya Airways cancelling flights to France and Netherlands across February.

Early last year, the government through its monetary and fiscal agents deployed its firepower to cushion the economy from adverse effects of the pandemic.

The National Treasury for instance lowered key tax rates including value added tax (VAT), pay as you earn (PAYE) and corporation tax providing temporal relief to businesses and households.

On its part, the CBK lowered both the benchmark lending rate (CBR) and the cash reserve ratio (CRR) to channel more funds to the economy along with the allowance to banks to restructure customer loan payments.

Moreover, the CBK waived fees on mobile money transfers below Ksh.1000 to support cash-less transactions.

Nevertheless, the bulk of measures adopted have since been scaled back with the National Treasury for instance seeking to recover Ksh.65 billion in skipped tax revenues between April and December last year.

Fresh statistics from the Kenya National Bureau of Statistics (KNBS) covering Q3 meanwhile shows the economy still sits in a precarious position despite an ease in COVID-19 containment measures with the economy having entered recession in September.

However, the CBK expects the economy to continue finding resilience in dynamic sectors such as agriculture and construction.

“It is important to acknowledge the pillars of our economic resilience, 2020 was a great year for agriculture and we would expect some of the dynamism to remain in 2021,” Dr Njoroge added.

The reserve bank further expects the economy to find footing from stable inflation with non-food, non-fuel (core) inflation having sat below three per cent in the past year.

The CBK also sees a resilient banking sector supported by strong capital and liquidity buffers in spite of a significant rise in non-performing loans (NPLs).

Other 2021 projections reveal much more optimism for growth across 2021 with the pair of the National Treasury and the World Bank seeing GDP growth at 6.4 and 6.9 per cent respectively.