NCBA PROJECTS GDP GROWTH TO RECOVER 3.9 PERCENT

NCBA PROJECTS GDP GROWTH TO RECOVER 3.9 PERCENT

By Douglas Muriithi

NCBA Group PLC (NCBA) is projecting the

country’s Gross Domestic Product (GDP) to

grow by 3.9 percent in 2021 if the second wave

of Covid-19 is less severe and the government

continues to reopen the economy.

Economists at NCBA say the recovery of the

economy will also be dependent on how quickly

business are able to reopen; how fast a vaccine

is found and how fast government revenues

pick up, allowing for healthy spending beyond

the Big Four.

Speaking during the 3rd NCBA Economic

Forum, NCBA Group Managing Director, John

Gachora said that Whereas things had begun

looking up with the easing of restrictions, it felt

more like a “truce” than an actual “peace treaty”

and continues to call for a unique response and

preparedness. The economists however project

the economy could still recover at a more

moderate pace of 2.5% in 2021 if the second

wave of the pandemic is severe but lockdowns

are still more localized.

“Given the immense uncertainty that the

pandemic continues to present, we looked at

likely growth under different scenarios,

informed by the evolution of the pandemic and

potential policy interventions,” they noted.

NCBA projects that the agriculture sector will

provide primary support to the recovery.

They however predict that shifting priorities

may cause the government to prematurely

withdraw its tax relief measures, thus hurting

recovery path.

According to NCBA, the Government could face

significant fiscal challenges in addressing the

raging pandemic while simulating growth.

The analysts however warn that the strategic

shift to domestic markets could crowd out the

private sector. They project the KES 524 billion

domestic debt target may be scaled further up

towards KES 600 billion as revenues grossly

underperform.

They also project that non-performing loans

(NPLs) ratio could accelerate towards 15% as

prudential guidelines are retightened. “While

NPLs for banks have stabilized around 13%, it is

clear that the prudential interventions masked a

lot of delinquencies for banks and their effects

on balance sheet will be lagged,” they noted.

They warn that risk of capital loss could

undermine banks’ appetite for private sector

lending.

At the same time, the heavy liquidity demand by

the sovereign may divert capital away from the

productive sector. This may further subdue

domestic demand and private investments.

NCBA expects the GDP to contract by 1.8% in

2020. This is a downgrade from the initial

baseline projection of a 0.2% expansion in 2020

and markedly slower than the 5.4% growth in

2019. “The unique source of uncertainty and the

longevity of the pandemic has made for a

challenging investment environment, weakened

household and firm incomes aggravating earlier

fragilities in domestic demand,” they noted.

NCBA Economic Forum was launched in

January 2018 with the aim of bringing together

the government and industry stakeholders for a

conversation meant to spark economic thought

leadership and inspire action.

This forum features experts in various fields

drawn from the public and private sectors to

offer deep insights and understanding on

economic issues.