Metropol Corporation Kenya and Standard Chartered to hold the economic outlook 2023 briefing.
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Metropol Corporation Kenya and Standard Chartered to hold the economic outlook 2023 briefing.

Business information service provider Metropol Corporation and banking company, Standard Chartered have compiled their economic outlook for 2023 for Kenya which points to a decline in GDP growth due to various variables.

Metropol Corporation is set to release this report today, July 3, 2023, at KCB Towers Upperhill, opposite Equity Bank Centre, Nairobi while Standard Chartered at Villa Rosa Kempinski. 

In the last few years, the global economy has been trying to cope with multiple shocks and economic uncertainties. This has been fueled by the Covid-19 pandemic, political instability, climate change-induced shocks, and international conflicts.

Most of the low-income countries have already been affected by these factors and others including surges in food and commodity prices, devastating effects of climate change, debts, and limited access to foreign finance. These negative economic effects have not left out both middle and high-income economies, where a combination of factors is also hitting hard on the cost of living.

According to the World Bank, the world’s poorest countries have been spending the highest share of their revenues on debt-service payments. Debt-related risks are increasing for low and middle-income economies.

Currently, Kenya’s nominal GDP stands at Ksh 12 trillion, meaning, Kenya’s debt which is at Ksh 9.182 trillion is around 70% of GDP. Categorically the government is already in breach of the new threshold set by 15% and thence will be forced to find ways to walk the country backward by growing the economy and cutting down its debt appetite. Going by the recent changes, the current debt is supposed to be capped at Ksh 6.6 trillion.

During his campaigns, President William Ruto promised to cut down external borrowing and to work towards reducing Kenya’s debt. As a result of this, the government now seeks to borrow a chunk of its budget deficit internally.

Government borrowing internally would result in a situation called the crowding effect. This is a situation whereby commercial banks prefer to give loans to the government than to citizens, and is likely to reduce private investments, reduce savings, and ultimately consumption; all of which reduce the economic growth and development of a country.

Barely one week in office, the new Central Bank of Kenya (CBK) Governor Kamau Thugge also held a meeting that increased the benchmark lending rate to the highest point in nearly seven years on heightened fear of a spike in consumer prices. The raising of interest rates would then lead to more expensive bank loans to borrowers.

As a result of the increase in interest rate by the Central Bank of Kenya, SMEs may feel less inclined to borrow money to fund expansion and also due to the expensive rates for business loans. The effects of this would automatically translate to an increase in the cost of doing business.

The move by the executive to increase its debt foothold locally and the one by CBK to raise lending rates will have a big impact on the local economy, and if not checked, might lead to undesirable consequences for SMEs who are already bracing for difficult tax measures expected to kick off from July 1st occasioned by the president assenting to the finance bill 2023 into law.

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