Kenya, World Bank Cut Country's 2015 Economic Growth Forecast

  • East African nation expects $750m syndicated loan in 2 weeks
  • Government will reduce local borrowing in favor of foreign

Kenya and the World Bank cut their growth forecasts for East Africa’s biggest economy, while the government said it’s securing a $750 million syndicated loan as it tries to borrow more cheaply than locally.

The economy will probably expand by 6 percent this year, compared with an earlier outlook of 6.5 percent, because of tougher global conditions such as falling commodity prices and tight liquidity, Treasury Secretary Henry Rotich told lawmakers in the capital, Nairobi, on Thursday. Earlier, the World Bank also trimmed its forecast for expansion to 5.4 percent, from 6 percent.

Kenya supplies a third of cut flowers sold in Europe and is also the world’s biggest exporter of black tea. The economy has been hit by a decline in tourism following a spate of attacks by Islamist militants, slowing foreign exchange inflows and weakening the shilling, which has fallen 12 percent against the dollar this year.

To help support the shilling, the central bank has lifted its benchmark interest rate by 3 percentage points this year to 11.5 percent. Central bank policy makers didn’t see a need for further tightening at the last two rate-setting meetings as inflation stayed below the 7.5 percent target ceiling all year.

Rising Rates

The government wants to borrow more abroad and reduce debt issuances on local markets, where rates are rising. The yield on the government’s benchmark 91-day Treasury bills rose to more than 21 percent at an auction this week, the highest since at least 1998.

“In view of the high interest rates, we now want to substitute domestic borrowing with external debt,” Rotich said. “That will help ease pressures so that it does not affect economic growth.”

The syndicated loan would help boost liquidity in the foreign-exchange market when the money comes through in about two weeks, Rotich said.

Last year, Kenya raised its first ever Eurobond for a total $2.75 billion, whose proceeds helped underpin the central bank’s foreign-exchange market interventions, Treasury Principal Secretary Kamau Thugge told lawmakers.

The World Bank said on Thursday that volatility on Kenya’s domestic foreign-exchange market and the monetary policy response to calm those fears will damage the country’s economic output this year.

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