- Kenya Growth Outlook Cut by World Bank Over Credit, Spending
The World Bank lowered its economic growth forecasts for Kenya as delays in spending cuts, weak credit extension and political uncertainty curb expansion prospects.
East Africa’s biggest economy may grow 4.9 percent this year, the slowest pace since 2011, the Washington-based lender said in a report released Thursday. That compares with an April forecast of 5.5 percent, slower than last year’s gross domestic product expansion of 5.8 percent.
A government-imposed cap on commercial lending rates, a drought and two disputed elections have weighed on growth this year in the world’s largest black-tea exporter. The Treasury had to increase its budget-deficit forecast for the year through June and is looking to return to international debt markets for a possible $2 billion Eurobond sale to try to plug the fiscal gap.
“There is a need to consolidate the fiscal stance in order not to jeopardize Kenya’s hard-earned macroeconomic stability,” the World Bank said. Kenya must also “jump-start the recovery of credit growth to the private sector” and should “mitigate weather-related risks by climate-proofing agriculture” to support growth, it said.
The bank reduced the 2018 growth forecast to 5.5 percent from 5.8 percent in April, and cut the estimate for 2019 to 5.9 percent from 6.1 percent, it said.
Despite the downgraded forecasts, the World Bank’s forecasts may still be too bullish given the series of obstacles the economy faces including the rate caps and new accounting rules for banks, said Jared Osoro, director of research at the Kenya Bankers Association.
“There are a number of downside risks that have been identified, which if taken into consideration will put into question the bullish outlook,” he said.
Public debt has burgeoned to about 57 percent of GDP, from about 45 percent eight years earlier. The Treasury sees the budget deficit at 8.5 percent of GDP by June 30, unchanged from a year earlier. It previously said the gap would narrow to 6.8 percent.
In September, the nation amended its 2.6 trillion-shilling ($25.3 billion) budget to include “austerity measures” for the current fiscal year to accommodate unplanned spending such as the Oct. 27 election rerun, Treasury Secretary Henry Rotich said.
Austerity is “precisely what we want to see,” Allen Dennis, the World Bank’s chief economist for Kenya, told reporters before the report’s release. That would reduce the borrowing requirement, and move credit to the private sector, spurring growth, job creation and consumption, he said.
Kenya needs to lower the public-sector wage bill, which accounts for about 49 percent of tax income, and must improve revenue collections to help trim the deficit, the World Bank said. The country has a tax gap of about 5 percent of GDP arising from exemptions that it should eliminate, the lender said.
The nation should also remove a cap on bank-lending rates that has exacerbated dwindling private-sector credit, which was already slowing because of tighter industry regulations and the collapse of three lenders in eight months, the lender said.
The ceiling limits charges on loans to 400 basis points above the central bank’s rate and was started by President Uhuru Kenyatta in August 2016 to spur credit access. Instead, banks have been investing in safer government securities.
It’s “clearly not helped to instill a sense of confidence in the economy and has not had the intended consequence of making credit more affordable,” said Rajiv Daya, a consultant at the World Bank.
Oil Posts 2% Gain for the Week Despite India Virus Surge
Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.
Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.
Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.
In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.
However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.
In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.
The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.
“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.
The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.
“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.
“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”
Lagos Commodities and Futures Exchange to Commence Gold Trading
With the admission of Dukia Gold’s diversified financial instruments backed by gold as the underlying asset, Lagos Commodities and Futures Exchange is set to commence gold trading.
According to Dukia Gold, the instruments will be in form of exchange-traded notes, commercial papers and other gold-backed securities, adding that it will enable the company to deepen the commodities market in Nigeria, increase capacity, generate foreign exchange for the Nigerian government to better diversify foreign reserves and create jobs across the metal production value chain.
Tunde Fagbemi, the Chairman, Dukia Gold, disclosed this while addressing journalists at Pre-Listing Media Interactive Session in Lagos on Thursday.
He said, “We are proud to be the first gold company whose products would be listed on the Lagos Futures and Commodities Exchange. The listing shall enable us facilitate our infrastructure development, expand capacity and create fungible products.
“This has potential to shore up Nigeria’s foreign reserve and create an alternative window for preservation of pension funds. A gold-backed security is a hedge against inflation and convenient preservation of capital.”
“As a global player, we comply with the practices and procedures of London Bullion Market Association and many other international bodies. Our refinery will also have multiplier effects on the development of rural areas anywhere it is located,” he added.
Mr Olusegun Akanji, the Divisional Head, Strategy and Business Solutions, Heritage Bank, said the lender had created a buying centre for verification of quality and quantity of gold and reference price to ensure price discovery in line with the global standard.
Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook
Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.
Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.
Both contracts hit the highest level since mid-March in intra-day trade.
“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.
“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.
Crude prices were also supported by a large fall in U.S. inventories.
The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.
Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.
“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.
The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.
Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.
“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.
This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.
“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.
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