NCBA ECONOMIC FORUM FORECASTS STEADY GDP GROWTH AND ECONOMIC RESILIENCE AMID GLOBAL CHALLENGES

This year’s NCBA economic forum was successfully  held on November 6 in Nairobi. During  the forum, Mr.  John Gachora,  the Group  Managing Director of NCBA, outlined Kenya’s path towards  economic recovery and resilience amid a global environment marked by volatility. Held under the theme : ‘ Navigating Uncertainty – Key Trends Influencing the Economic and Business Environment in 2025,” the forum brought together industry leaders to discuss Kenya’s economic landscape, touching on inflation control, lending rates, and fiscal policy. Mr.  Gachora and Dr. David Ndii, Chair of the President’s Council of Economic Advisers, emphasized NCBA’s and the government’s commitment to maintaining economic stability and supporting long-term growth.

Navigating inflation and interest rates

Mr. Gachora opened his presentation  by pointing to a significant milestone: Kenya’s inflation rate fell to a 14-year low of 2.7% in October, facilitated by easing global commodity prices, lower food costs, and the implementation of restrictive financing policies. “This improvement in inflation  provides an opportunity to re-calibrate monetary policy in favour of lower lending rates,” he noted.

Against   this background, NCBA has already  reduced   its base lending rates. It was the first lender to do so.  Addressing  NCBA’s  customers, Mr. Gachora expressed   hope that  they  are already benefiting from reduced interest payments. “For those who haven’t yet joined us, now is the perfect time to take advantage of these reductions,” he said, positioning NCBA as a leader in creating affordable financing solutions for both businesses and households.

Growth projections: a steady course

Despite global economic uncertainties, NCBA projects a  steady  Gross Domestic Product  (GDP)  growth of 4.8% for Kenya in 2024, with similar growth rates anticipated through 2025. Key sectors, particularly agriculture, are expected to continue performing well, supported by favourable weather conditions that boost agricultural exports and agro-processing. Mr.  Gachora also highlighted the resilience of Kenya’s service sector, which has returned to long-term growth averages across most sub-sectors, further bolstering GDP growth.

However,  he   cautioned that Kenya faces fiscal pressures. With 38% of tax revenue allocated to public debt interest payments in the 2024/2025 fiscal year, this fiscal burden limits resources available for development projects essential to medium- and long-term growth. In the same vein, he  expressed concern over the unpredictability of tax and statutory deductions, which create uncertainty for businesses and impact cash flow projections, adding   to the financial strain on Kenya’s private sector.

Fiscal policy and the path to lower interest rates

Dr.  Ndii provided further insight into Kenya’s fiscal strategy, stressing the government’s intent to anchor inflation at around 3%, a target that could bring single-digit interest rates across Kenya’s yield curve. “This would allow short-term treasury bills to settle around 5% and medium-term bonds at close to 10%,” he  explained adding  that this will  create  significant fiscal space by reducing borrowing costs for the government. He underscored that maintaining inflation control and pursuing targeted interventions in agriculture, energy, and housing are crucial to achieving this goal, as these sectors have both micro- and macroeconomic impacts.

In a vivid illustration of the potential benefits, Dr.  Ndii pointed out that a 1% annual reduction in domestic borrowing rates could save the government Kshs. 255 billion by the 2026/2027 fiscal year. The said  savings would equate to Kenya’s annual requirement for external financing, demonstrating the importance of managing inflation and interest rates to boost fiscal capacity.  He further said  that lower interest rates represent a ‘win-win’ for both the government and the private sector, enhancing economic growth and stability across the board.

Exchange rate and investment climate

Turning to the issue of currency stability, Dr.  Ndii reported positive developments in Kenya’s exchange rate, supported by robust reserves, which currently cover 4.7 months of imports. He attributed the shilling’s recent stability to several factors, including a turnaround in export performance and renewed foreign direct investment (FDI) in strategic sectors. He noted that a  strong FDI pipeline is  anticipated   in agriculture, energy, and infrastructure, with major projects valued at over $15 billion projected for the next three to four years. The government’s effort  in advancing public-private partnerships (PPPs)  is  also expected to attract further investment, particularly in energy and infrastructure, enhancing Kenya’s economic resilience and growth potential.

Domestic economic prospects and challenges

Mr. Gachora acknowledged Kenya’s domestic economic strengths, including robust growth in agriculture, boosted by favourable weather, and the resilience of the service sector. However, he highlighted that development expenditures remain irregular, reflecting the government’s limited fiscal capacity. Additionally, the accumulation of pending bills, which total around Kshs.  520 billion for the national government and Kshs.  180 billion for counties, continues to strain the private sector’s liquidity.

NCBA’s in-house projections suggest that GDP growth in 2024 will be  4.8%, closely aligned with the 4.9% forecast at last year’s forum. Although this indicates a stable trajectory, Mr. Gachora cautioned that ongoing fiscal challenges could negatively  impact growth, underscoring the need for a forward-looking dialogue that fosters predictable government policies and supports private sector investment.

He  concluded by reiterating NCBA’s commitment to fostering ongoing dialogue on key economic issues, supporting government initiatives, and providing leadership in Kenya’s economic growth. “Through the NCBA economic forum, we aim to bring together some of the brightest minds to analyze Kenya’s growth challenges and identify practical solutions,” he said. With NCBA’s proactive approach in adjusting lending rates and its engagement in high-level economic discussions, the lender  continues to be a pivotal player in Kenya’s journey towards  sustainable and inclusive economic growth.