JULY – OCTOBER 2020 SUMMARY Performance in the Real Sector The COVID-19 pandemic remains a major downside risk to global economic activity. Advanced economies are projected to contract by 8 per cent and emerging markets and developing economies by 3 per cent growth in 2020. Kenya’s economy contracted by 5.7 per cent in the second quarter of 2020, resulting in an average -0.4 percent half year growth rate. The overall inflation in Kenya declined from a high of 7.7 per cent in January to 4.8 per cent in October 2020. A general decline in prices was experienced in food and non- alcoholic beverages, housing and utilities, health, clothing and footwear while fuel inflation took a gradual increase occasioned by rise in crude oil and subsequent increase in local pump prices. The short rains in the next quarter are expected to maintain food prices stable. International Market Production, exports and prices of tea and coffee continued to follow the seasonal patterns depicted in previous years. Between beginning of July 2020 and end of October 2020, the Kenya shilling (Ksh) depreciated by 2.1 per cent, 7.6 per cent and 6.4 per cent against the US Dollar, Sterling Pound and the Euro, respectively. A similar trend in exchange rate to the US Dollar is depicted for other markets in the region. Kenya maintains an average of 5.4 months of import cover. Monetary and Financial Sector The Central Bank of Kenya maintained an eased monetary policy stance, with the policy rate at 7 per cent, to support economic activity. Similarly, most Central Banks in in the region maintained eased monetary policy stance to stimulate economic activity. The 91- day, 182-day and 364-day Treasury bills interest rates decreased from 6.7 per cent, 7.4 per cent and 8.1 per cent at the beginning of July 2020 to 6.6 per cent, 6.9 per cent and 7.8 per cent, respectively, while the interbank market rate increased from 1.9 per cent to 6.1 per cent between beginning of July and end of October 2020. While mobile money subscriptions remained almost unchanged, the market witnessed a steep rise in both number and value of transactions since the Central Bank instituted various measures for cashless transactions. Non-performing loans took an upwards trend as expected with the slowed economic activity while growth in private sector credit slowed. Fiscal Performance The cumulative actual national revenue receipts as of 30th June 2020 totaled Ksh 1,753.0 billion, an increase of 4.7 per cent compared to June 2019. In the first quarter of 2020/21, the Government revenue collected was lower by 15.7 per cent compared to a similar quarter in 2019. The exchequer allocation to the Ministry of Health as a percentage of 2 total issues to Ministries, Departments and Agencies (MDAs) was higher in the April to September 2020 period (5.0%) compared to a similar period in 2019 (3.8%), as the Government stepped up support to the health sector in the counties in preparation to combat the COVID-19 pandemic. The total public debt as at June 2020 was Ksh 6,693.7 billion, an increase of 33.4 per cent from June 2019. Government domestic debt is mainly held in treasury bonds and treasury bills. In the first quarter of 2020/21, the proportion of domestic debt held in treasury bonds rose to 70.5 per cent from 63.5 percent in similar quarter last year, while debt held in treasury bills declined to 28.3 per cent in 2020 from 33.6 per cent in the previous year. Capital Markets With confirmed COVID-19 cases, stock markets world-wide registered a sharp drop in the first quarter of 2020 as investors adopted a wait-and-see stance, evaluating the possible negative impact of the pandemic. A global recovery phase was experienced in April- August as countries adopted new ways of trading. However, the market jitters with resurgence of a second wave of COVID-19 pandemic are witnessing a slowing market activity. The stock market in Kenya has also taken a declining trend since January 2020, occasioned by declined foreign investor participation. The 10-year Kenya Eurobond (2024) saw a declining yield after a sharp increase in March-April 2020 occasioned by volatility and uncertainty in the international markets in the light of COVID-19 pandemic escalation. Risk-related Factors The Purchasing Managers’ Index (PMI) for Kenya moved further above the 50-threshold, increasing to 59.1 in October, marking the fourth consecutive month of improved business conditions since the outbreak of the COVID-19 pandemic. This signals a notable improvement in the private sector and health of the economy, with growth in new orders mainly from Europe and the Middle East as customer demand expanded following further easing of restrictions. The country recorded an average rainfall of 491.7mm and 277.5mm in March-May and June-August 2020, respectively, which was higher than that recorded in the previous year. Coupled with favourable mean monthly temperatures, this has contributed to good performance in the agricultural sector and stable food prices. In terms of credit rating for Kenya, the June 2020 fitch rating indicates a negative outlook for long term issuer default rating and local currency long-term issuer default rating. While the infection rate remained fairly low since the first confirmed case in the country in March 2020, a surge in infection rate in the fourth quarter depicts a possible ‘second wave’ of the COVID-19 pandemic. 3 Table of Contents 1. Performance in the Real Sector ........................................................................... 5 2. International Markets ........................................................................................... 11 3. Monetary and Financial Sector ........................................................................... 17 4. Fiscal Performance ................................................................................................ 21 5. Capital Markets ...................................................................................................... 26 6. Risk-related Factors .............................................................................................. 31 4 1. Performance in the Real Sector a) GDP performance Figure 1: GDP growth, inflation and stock market performance 8 3,500 7 3,250 6 3,000 5 2,750 4 2,500 3 2,250 2 2,000 1 1,750 0 1,500 -1 1,250 -2 1,000 -3 750 -4 500 -5 250 -6 0 Quarterly GDP Growth (%) Inflation (%) NSE20 Index Data source: Central Bank of Kenya; Kenya National Bureau of Statistics; GDP growth rate for September 2020 from the World Economic Outlook, October 2020 Figure 2: Economic performance of selected advanced and emerging markets Kenya Kenya Kenya6.00 Kenya 4.00 2.00 0.00 -2.00 -4.00 -6.00 -8.00 -10.00 -12.00 -14.00 -16.00 -18.00 -20.00 -22.00 April-June 2019 July-Sept 2019 Oct-Dec 2019 Jan-March 2020 April-June2020 July-Sept 2020 Kenya USA UK Japan China France Mexico Brazil S. Africa Data source: Country statistical offices; https://tradingeconomics.com/ GDP growth rate for September 2020 from the World Economic Outlook, October 2020 5 Year-On-Year GDP Growth Rate (%) Inflation and Quarterly GDP (%) Jan-19 Feb-19 Mar-19 5.6 Apr-19 May-19 Jun-19 5.3 Jul-19 Aug-19 Sep-19 5.1 Oct-19 Nov-19 Dec-19 5.4 Jan-20 Feb-20 Mar-20 4.9 Apr-20 May-20 Kenya -5.7 Jun-20 Jul-20 Aug-20 Sep-20 1.0 Kenya Oct-20 NSE20 Insex Figure 3: Cement production and consumption (‘000 MT) and index of value of building plans 640 600 625 560 610 520 595 480 580 440 565 400 550 360 535 320 520 280 505 240 490 200 475 160 460 120 445 80 430 40 Cement Production (000' MT) Cement Consumption ('000 MT) Index of Value of Building Plans (Dec 1972=100) Data source: Kenya National Bureau of Statistics Figure 4: Kenya Housing and Property Indices 450 127.5 440 125 430 122.5 420 120 410 117.5 400 115 390 112.5 380 110 370 107.5 360 105 Hass Composite Property Sales Index Hass Composite Property Rental Index KBA Housing Price Index (Fixed Base) KBA Housing Price Index (Moving Base) Hass Composite Property Sales Index: Year 2000 = 100; KBA Housing Price Index (fixed base): Q1 – 2013 = 100. Data Source: Hass Property Index (http://hassconsult.co.ke/real-estate/hass-index/ ) Kenya Bankers Association (https://www.kba.co.ke/house_price.php) 6 Hass Composite Index Cement Production & Consumption ('000 MT) Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Oct-19 Nov-19 Nov-19 Dec-19 Dec-19 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Apr-20 Mar-20 May-20 Apr-20 Jun-20 May-20 Jul-20 Jun-20 Aug-20 KBA Housing Price Index Index of Value of Building Plans) Figure 5: Intake of processed milk in the formal sector (million litres) 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Milk Intake in 2018 Milk Intake in 2019 Milk Intake in 2020 Data source: Kenya National Bureau of Statistics Figure 6: Monthly tourist arrivals* (number) 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 Data source: Kenya National Bureau of Statistics *Total tourist arrivals by Air 7 Number of Tourists Milk Intake (Million Litres) b) Price movement Figure 7: Consumer Price Index and Producer Price Index 111.0 103.0 110.0 102.5 109.0 102.0 108.0 101.5 107.0 101.0 106.0 100.5 105.0 100.0 104.0 99.5 103.0 99.0 102.0 98.5 101.0 98.0 100.0 97.5 Producer Price Index Consumer Price Index Data source: Kenya National Bureau of Statistics CPI base year: February 2019 = 100; PPI base year: March 2019 = 100 Figure 8: Comparative inflation for selected countries in Africa 25.00 23.00 21.00 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 (1.00) (3.00) (5.00) Kenya Uganda Tanzania Rwanda Burundi S. Africa Namibia Zambia Ghana Nigeria Ethiopia Data Source: Country statistical offices 8 Inflation (%) Consumer Price Index Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Oct-19 Nov-19 Nov-19 Dec-19 Dec-19 Jan-20 Feb-20 Jan-20 Mar-20 Feb-20 Apr-20 Mar-20 May-20 Apr-20 Jun-20 May-20 Jul-20 Jun-20 Aug-20 Jul-20 Sep-20 Aug-20 Oct-20 Sep-20 Oct-20 Producer Price Index Figure 9: Domestic wholesale agriculture commodity prices (Ksh/Kg) 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Kales Cereals Legumes Tubers Fruits & Vegetables Data source: Calculated by KIPPRA using data from Ministry of Agriculture Figure 10: Contribution of selected CPI baskets to overall Inflation (%) 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - (0.50) Food & Non-Alcoholic Beverages Clothing & Foot-wear Housing, Water, Electricity, Gas and other Fuels Health Fuel Inflation Data Source: Kenya National Bureau of Statistics, and Central Bank of Kenya 9 Contribution to Overall Inflation (%) Average Wholesale Price per Kg Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Oct-19 Nov-19 Nov-19 Dec-19 Dec-19 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 Sep-20 Oct-20 Oct-20 Figure 11: Average domestic pump prices and global crude oil prices 120.0 75.0 115.0 70.0 110.0 65.0 105.0 60.0 100.0 55.0 95.0 50.0 90.0 45.0 85.0 40.0 80.0 35.0 75.0 30.0 70.0 25.0 65.0 20.0 60.0 15.0 Motor Gasoline Premium Light Diesel Oil (Gasoil) Illuminating Kerosene OPEC Basket Crude Oil Prices Data Source: Kenya National Bureau of Statistics; Energy and Petroleum Regulatory Authority; https://oilprice.com/oil-price-charts/block/50 10 Average Local Retail Price (KSh./Ltr) Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 OPEC Basket Crude Oil Prices (US$ / Barrel) 2. International Markets Figure 12: Trends in coffee and tea production (MT), exports (Ksh millions) and auction prices (Ksh/Kg) Figure 12(a): Monthly coffee production (MT) 5,500.00 4,500.00 3,500.00 2,500.00 1,500.00 500.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2018 2019 Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/); Figure 12(b): Monthly coffee exports (Ksh million) 3500 3000 2500 2000 1500 1000 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2018 2019 Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/); Figures for January and February 2020 are provisional. 11 Coffee Exports (KSh. Million) Coffee Production MT) Figure 12(c): Comparison between global coffee exports (MT) and Kenya coffee exports (% of global total exports) 720,000 0.90 695,000 0.80 670,000 0.70 645,000 0.60 620,000 0.50 595,000 0.40 570,000 0.30 545,000 0.20 520,000 0.10 Global Coffee Exports Kenya Coffee Exports Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/); International Coffee Organization (http://www.ico.org/coffee_prices.asp) Figure 12(d): Monthly Kenya coffee auction prices (Ksh/Kg) and global composite prices (US cents/lb) 550.0 120.0 500.0 115.0 450.0 110.0 400.0 350.0 105.0 300.0 100.0 250.0 95.0 200.0 150.0 90.0 Global Coffee Composite Prices (US cents / lb), 2019 Global Coffee Composite Prices (US cents / lb), 2020 Kenya Coffee Auction Prices (KSh./Kg), 2019 Kenya Coffee Auction Prices (KSh./Kg), 2020 Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/); International Coffee Organization (http://www.ico.org/coffee_prices.asp) 12 Kenya Coffee Auction Prices (KSh./Kg) Global Coffee Exports (MT) January Apr-19 February May-19 Jun-19 March Jul-19 April Aug-19 Sep-19 May Oct-19 June Nov-19 Dec-19 July Jan-20 August Feb-20 Mar-20 September Apr-20 May-20 October Jun-20 November Jul-20 Aug-20 December Kenya Coffee Exports (% of global Composite Coffee Prices (US cents/lb) exports) Figure 12(e): Monthly tea production (MT) 58,000 55,000 52,000 49,000 46,000 43,000 40,000 37,000 34,000 31,000 28,000 25,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2018 2019 Data source: Kenya National Bureau of Statistics; East African Tea Trade Association Figure 12(f): Monthly tea exports (Ksh million) 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2018 2019 Data source: Kenya National Bureau of Statistics; East African Tea Trade Association 13 Tea Exports (KSh. Million) Kenya Tea Production (MT) Figure 12(g): Monthly Kenya tea auction prices (Ksh/Kg) 310.0 300.0 290.0 280.0 270.0 260.0 250.0 240.0 230.0 220.0 210.0 200.0 190.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2018 2019 Data Source: KNBS; East Africa Tea Trade Association; Mombasa Tea Auction Figure 13: The exchange rate of Kenya shilling to global currencies 150.00 150.00 140.00 140.00 130.00 130.00 120.00 120.00 110.00 110.00 100.00 100.00 90.00 90.00 80.00 80.00 US Dollar Index KES/USD KES/STG-POUND KES/EURO Data source: Central Bank of Kenya; Kenya National Bureau of Statistics; https://www.investing.com/quotes/us-dollar-index-historical-data 14 Units of KES 1 to 1 USD, STG-Pound, Euro Tea Auction Prices (KSh./Kg) 01-Apr-19 18-Apr-19 05-May-19 22-May-19 08-Jun-19 25-Jun-19 12-Jul-19 29-Jul-19 15-Aug-19 01-Sep-19 18-Sep-19 05-Oct-19 22-Oct-19 08-Nov-19 25-Nov-19 12-Dec-19 29-Dec-19 15-Jan-20 01-Feb-20 18-Feb-20 06-Mar-20 23-Mar-20 09-Apr-20 26-Apr-20 13-May-20 30-May-20 16-Jun-20 03-Jul-20 20-Jul-20 06-Aug-20 23-Aug-20 09-Sep-20 26-Sep-20 13-Oct-20 30-Oct-20 US Dollar Index Figure 14: The exchange rate of Kenya shilling to regional currencies 0.12 7.75 0.11 7.53 0.10 7.30 0.09 7.08 0.08 6.85 0.07 6.63 0.06 6.40 0.05 6.18 0.04 5.95 0.03 5.73 0.02 5.50 KES/UGX KES/TZS KES/RWF KES/BIF KES/SA-Rand Data source: Central Bank of Kenya Figure 15: Performance of select currencies against the US Dollar Data source: Country Statistics Offices; https://www.investing.com Percentage change in currencies against the US Dollar measured as end of period changes. USD-US Dollar; KES - Kenyan Shilling; UGX-Ugandan Shilling; TZS-Tanzanian Shilling; RWF-Rwandan Franc; BIF-Burundian Franc; SA-South Africa; NAD-Namibian Dollar; ZMW-Zambian Kwacha; GHS-Ghanaian Cedi; NGN-Nigerian Naira; ETB-Ethiopian Birr. 15 Units of KES to 1 USH, TSH, RWF, BIF 01-Apr-19 18-Apr-19 05-May-19 22-May-19 08-Jun-19 25-Jun-19 12-Jul-19 29-Jul-19 15-Aug-19 01-Sep-19 18-Sep-19 05-Oct-19 22-Oct-19 08-Nov-19 25-Nov-19 12-Dec-19 29-Dec-19 15-Jan-20 01-Feb-20 18-Feb-20 06-Mar-20 23-Mar-20 09-Apr-20 26-Apr-20 13-May-20 30-May-20 16-Jun-20 03-Jul-20 20-Jul-20 06-Aug-20 23-Aug-20 09-Sep-20 26-Sep-20 13-Oct-20 30-Oct-20 Units of KES to 1 SA-Rand Figure 16: Months of import cover and diaspora remittances 6.50 300.0 6.30 289.0 6.10 278.0 5.90 267.0 5.70 256.0 5.50 245.0 5.30 234.0 5.10 223.0 4.90 212.0 4.70 201.0 4.50 190.0 Diaspora Remittances Months of Import cover Data Source: Central Bank of Kenya 16 Months of Import Cover Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Diaspora Remitances (USD Million) 3. Monetary and Financial Sector Figure 17: Interbank rate and volume, Repo and interest rates Central Bank Rate (%) Repo and Reverse Repos 9.20 10.00 9.00 9.00 8.80 8.60 8.00 8.40 7.00 8.20 6.00 8.00 5.00 7.80 7.60 4.00 7.40 3.00 7.20 2.00 7.00 6.80 Repo (7-days) % Reverse Repos (%) 9 Interbank Rate and Volume 45000 Commercial Bank Rates (%) 8 40000 13.30 12.50 7 35000 11.70 10.90 6 30000 10.10 5 25000 9.30 8.50 4 20000 7.70 3 15000 6.90 6.10 2 10000 5.30 1 5000 4.50 3.70 0 0 Deposit Rate Savings Rate Lending Rate Volume (KSh. Million) Weighted Average Rate (%) Data source: Central Bank of Kenya Figure 18: Treasury bill weighted average rate (%) 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 91-Day 182-Day 364-Day Data source: Central Bank of Kenya 17 Interbank Weighted Average Rate (%) 01-Apr-19 Apr-19 18-Apr-19 01-Apr-19 05-May-19 May-19 22-May-19 15-Apr-19 08-Jun-19 Jun-19 29-Apr-19 25-Jun-1912-Jul-19 Jul-19 13-May-19 29-Jul-1915-Aug-19 Aug-19 27-May-19 01-Sep-1918-Sep-19 Sep-19 10-Jun-19 05-Oct-19 22-Oct-19 Oct-19 24-Jun-19 08-Nov-19 25-Nov-19 08-Jul-19 12-Dec-19 Nov-19 29-Dec-19 22-Jul-19 15-Jan-20 Dec-19 01-Feb-20 05-Aug-19 18-Feb-20 Jan-20 06-Mar-20 19-Aug-19 23-Mar-20 Feb-20 09-Apr-20 02-Sep-19 26-Apr-20 Mar-20 13-May-20 16-Sep-19 30-May-20 Apr-20 16-Jun-20 30-Sep-19 03-Jul-20 May-20 20-Jul-20 14-Oct-19 06-Aug-20 Jun-20 23-Aug-20 28-Oct-19 09-Sep-20 Jul-20 11-Nov-19 26-Sep-2013-Oct-20 Aug-20 25-Nov-19 30-Oct-20 Sep-20 09-Dec-19 Oct-20 23-Dec-19 Volume (KSh. Million) 06-Jan-20 20-Jan-20 03-Feb-20 Apr-19 Apr-19 17-Feb-20 May-19 May-19 02-Mar-20 Jun-19 16-Mar-20 Jun-19 Jul-19 30-Mar-20 Jul-19 Aug-19 13-Apr-20 Aug-19 Sep-19 27-Apr-20 Sep-19 Oct-19 11-May-20 Oct-19 Nov-19 25-May-20 Nov-19 Dec-19 08-Jun-20 Dec-19 Jan-20 22-Jun-20 Jan-20 Feb-20 06-Jul-20 Feb-20 Mar-2020-Jul-20 Apr-20 03-Aug-20 Mar-20 May-20 17-Aug-20 Apr-20 Jun-20 31-Aug-20 May-20 Jul-20 14-Sep-20 Jun-20 28-Sep-20 Aug-20 Jul-20 12-Oct-20 Sep-20 Aug-20 26-Oct-20 Oct-20 Figure 19: Commercial banks’ excess reserves (%) in relation to the CRR 5.80 5.79 5.79 5.70 5.71 5.68 5.60 5.57 5.62 5.50 5.44 5.51 5.40 5.39 5.38 5.38 5.30 5.25 5.20 5.16 5.10 5.04 5.00 5.00 Data source: Central Bank of Kenya; CRR = Cash Reserves Requirement Figure 20: Mobile money transactions 180.00 490.00 160.00 470.00 140.00 450.00 430.00 120.00 410.00 100.00 390.00 80.00 370.00 60.00 350.00 40.00 330.00 20.00 310.00 - 290.00 Mobile Money Subscriptions (Millions) Number of Transactions (Millions) Value of Transactions (KSh Billion) Data source: Kenya National Bureau of Statistics; Note: The mobile money subscriptions exceed total adult population since this is based on registered SIM Cards in transacting electronic gadgets (Individual mobile phones and Point of Sale gadgets). In addition, 30% of mobile users in Kenya own more than 1 SIM Card (https://www.ca.go.ke). 18 Subscriptiosn and Transactions (Number) Commercial banks’ excess reserves (%) in relation to the 5.25% CRR Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Aug-19 Jul-19 Sep-19 Aug-19 Oct-19 Sep-19 Nov-19 Dec-19 Oct-19 Jan-20 Nov-19 Feb-20 Dec-19 Mar-20 Apr-20 Jan-20 May-20 Feb-20 Jun-20 Mar-20 Jul-20 Aug-20 Apr-20 May-20 Jun-20 Value of Transactions (KSh. Billion) Figure 21: Kenyan banking sector performance Figure 21(a): Return on asset (%) 3.60 3.31 3.30 3.15 2.92 3.00 2.61 2.70 2.35 2.40 2.09 2.10 1.82 1.80 1.52 1.50 1.23 1.15 1.20 1.05 0.90 0.90 0.77 0.60 0.50 0.27 0.30 0.00 Data Source: Calculated using data from Central Bank of Kenya Figure 21(b): Liquidity ratio and ratio of gross NPL to gross loans, (%) 13.2 53.0 13.1 52.7 13.0 52.4 12.9 52.1 12.8 51.8 12.7 51.5 12.6 51.2 12.5 50.9 12.4 50.6 12.3 50.3 12.2 50.0 12.1 49.7 12.0 49.4 Ratio of Gross NPL/Gross loans Liquidity Ratio Data Source: Calculated using data from Central Bank of Kenya 19 Ratio of Gross NPL to Gross Loans (%) Return on Asset (%) Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Oct-19 Nov-19 Nov-19 Dec-19 Jan-20 Dec-19 Feb-20 Jan-20 Mar-20 Feb-20 Apr-20 Mar-20 May-20 Apr-20 Jun-20 May-20 Jun-20 Liquidity Ratio (%) Figure 22: Banking sector credit 32.00 9.80 28.00 8.70 24.00 7.60 20.00 6.50 16.00 5.40 12.00 4.30 8.00 3.20 Pubilc Sector Proportion of Banking sector credit (%) Manufacturing sector credit proportion of Banking sector credit (%) Private Sector Credit Growth (%) Data Source: Central Bank of Kenya Figure 23: Monetary policy stance for selected countries in Africa 17.00 16.00 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 Kenya Uganda Tanzania Rwanda Ghana Nigeria Zambia S. Africa Source: Country Central Banks 20 Public and Manufacturign sector proportion of Banking sector credit (%) Apr-19 May-19 Apr-19 Jun-19 May-19 Jul-19 Jun-19 Aug-19 Jul-19 Sep-19 Aug-19 Oct-19 Sep-19 Nov-19 Oct-19 Dec-19 Nov-19 Jan-20 Dec-19 Feb-20 Jan-20 Mar-20 Feb-20 Apr-20 Mar-20 May-20 Apr-20 Jun-20 May-20 Jul-20 Aug-20 Jun-20 Sep-20 Oct-20 Private Sector Credit Growth (%) 4. Fiscal Performance Figure 24: Fiscal deficit and county transfers (Ksh billion) 400 300 200 100 0 -100 -200 -300 -400 -500 -600 -700 -800 -900 July Aug Sept Oct Nov Dec Jan Feb Mar April May June Fiscal Deficit 2018/19 County Transfer 2018/19 Fiscal Deficit 2019/20 County Transfer 2019/20 County Transfer 2020/21 Fiscal Deficit 2020/21 Data Source: Calculated using data from Central Bank of Kenya and The National Treasury data published on monthly Kenya Gazette Notices. Figure 25: Monthly utilization of revenue against target Exchequer Issues to County Governments 390 400.00 380 350.00 370 300.00 360 250.00 350 200.00 340 150.00 330 100.00 320 310 50.00 300 0.00 Data Source: Monthly Gazette Notices, The National Treasury and Planning 21 Target Issues (KSh. Billion) Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Figure 26: Exchequer allocation to Ministry of Health as a % of total issues to Ministries, Agencies and Departments 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 - Recurrent Exchequer Issues as a % of total Issues to MDAs Development Exchequer Issues as a % of total Issues to MDAs Data Source: Monthly Gazette Notices, The National Treasury and Planning Figure 27: Composition of government revenue (Ksh billion) 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 - April-June 2019 July-Sept 2019 Oct-Dec 2019 Jan-March 2020 April-June 2020 July-Sept 2020 Tax Revenue Non-Tax Revenue Grants Total Revenue Data Source: Calculated using data from Central Bank of Kenya and The National Treasury data published on monthly Kenya Gazette Notices; June-September data 2020 is provisional 22 Revenue (KSh. Billion) Recurrent & Development Issues (%) to Health Sector Apr-19 3,884.79 587.45 May-19 69.68 4,541.92 Jun-19 Jul-19 697.44 59.42 Aug-19 5.72 781.01 Sep-19 Oct-19 1,864.45 358.37 Nov-19 28.24 Dec-19 2,251.04 Jan-20 2,942.86 626.68 Feb-20 41.17 3,610.70 Mar-20 Apr-20 3,946.33 839.12 May-20 41.56 4,827.01 Jun-20 Jul-20 600.30 28.07 Aug-20 30.00 658.37 Sep-20 Figure 28: Growth in tax revenue (%) and quarterly GDP growth (%) 12.00 9.78 10.14 9.7711.21 10.00 8.00 9.54 10.57 6.00 8.16 7.14 6.06 4.00 3.57 2.00 0.00 Q2-2018 - Q2-2019 Q3-2018 - Q3-2019 Q4-2018 - Q4-2019 Q1-2019 - Q1-2020 Q2-2019 - Q2-2020 Nominal Quarterly GDP Growth Nominal Tax Revenue Growth Data Source: Kenya National Bureau of Statistics and Central Bank of Kenya Figure 29: Total debt (Ksh billion) and proportionate shares of domestic and foreign debt 7,000.00 6,500.00 6,000.00 5,500.00 5,000.00 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 - Domestic debt Public & Publicly Guaranteed External debt Total Debt Data Source: Calculated using data from Central Bank of Kenya 23 KSh billions Growth in Tax Revenue and Quarterly GDP (%) Jun-19 47.96 % 52.04 % Sep-19 47.85 % 52.15 % Dec-19 48.64 % 54.84 % Mar-20 48.89 % 51.11 % Jun-20 47.48 % 52.53 % Figure 30: Composition of government domestic debt by instrument (%) 100% 90% 80% 70% 62.48 63.49 65.81 67.67 68.94 70.49 60% 50% 40% 30% 20% 35.78 33.55 31.20 29.86 28.58 28.33 10% 0% April-June 2019 July-Sept 2019 Oct-Dec2019 Jan-March 2020 April-June 2020 July-Sept 2020 Treasury Bills (excluding Repos) Treasury Bonds CBK Overdraft to Govt Other domestic debt Data Source: Calculated using data from Central Bank of Kenya Figure 31: Composition of government domestic debt by holder (%) 100% 4.47 4.27 4.34 4.29 4.4 4.28 90% 80% 27.94 28.34 28.38 28.59 29.16 31.67 70% 7.06 7.06 6.97 6.30 5.77 60% 5.59 6.19 6.18 6.51 6.33 6.2 6.18 50% 40% 30% 54.33 54.15 53.80 54.49 54.46 54.6 20% 10% 0% April-June 2019 July-Sept 2019 Oct-Dec 2019 Jan-March 2020 April-June 2020 July-Sept 2020 Banking Institutions Insurance Companies Parastatals Pension Funds Other investors Data Source: Calculated using data from Central Bank of Kenya 24 Figure 32: Composition of external debt: Proportionate shares of bilateral, multilateral, commercial bank and export credit 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 April-June 2019 July-Sept 2019 Oct-Dec 2019 Jan-March 2020 April-June2020 Bilateral Multilateral Commercial Banks Export Credit Data Source: Calculated using data from Central bank of Kenya 25 % of External Debt 33.89 31.00 34.53 32.60 33.10 33.75 32.78 33.20 33.49 32.42 34.13 32.92 33.04 33.00 33.42 5. Capital Markets Figure 33: Bond volumes traded (Ksh million) and FTSE NSE Kenya government bond price Index 99.00 100000.00 98.50 91200.00 98.00 82400.00 97.50 73600.00 97.00 64800.00 96.50 56000.00 96.00 47200.00 95.50 38400.00 95.00 29600.00 94.50 20800.00 94.00 12000.00 FTSE NSE Govt Bond Price Index Bond Volumes Traded (KSh. Million) Data Source: Nairobi Securities Exchange; Central Bank of Kenya Figure 34: The 10-year Kenya Eurobond (2024) yield (%) 10.7 10.2 9.7 9.2 8.7 8.2 7.7 7.2 6.7 6.2 5.7 5.2 4.7 4.2 10-year Eurobond Yield - 2024 (%) Data Source: Central Bank of Kenya 26 Yield (%) FTSE NSE Kenya Government Bond Price Index 01-Apr-19 18-Apr-19 Apr-19 05-May-19 22-May-19 May-19 08-Jun-19 Jun-19 25-Jun-19 12-Jul-19 Jul-19 29-Jul-19 Aug-19 15-Aug-19 01-Sep-19 Sep-19 18-Sep-19 Oct-19 05-Oct-19 22-Oct-19 Nov-19 08-Nov-19 Dec-19 25-Nov-19 12-Dec-19 Jan-20 29-Dec-19 Feb-20 15-Jan-20 01-Feb-20 Mar-20 18-Feb-20 Apr-20 06-Mar-20 23-Mar-20 May-20 09-Apr-20 Jun-20 26-Apr-20 Jul-20 13-May-20 30-May-20 Aug-20 16-Jun-20 Sep-20 03-Jul-20 20-Jul-20 Oct-20 06-Aug-20 23-Aug-20 09-Sep-20 26-Sep-20 13-Oct-20 Bond Volumes Traded (KSh. Million) 30-Oct-20 Figure 35: Stock market performance 3000.00 2900.00 2800.00 2700.00 2600.00 2500.00 2400.00 2300.00 2200.00 2100.00 2000.00 1900.00 1800.00 1700.00 1600.00 NSE20 Index Mkt Cap (KSh Bn) Data Source: Nairobi Securities Exchange Figure 36: Stock value turnover ratio (%) 0.130 0.120 0.110 0.100 0.090 0.080 0.070 0.060 0.050 0.040 0.030 0.020 0.010 0.000 Data Source: Nairobi Securities Exchange; Calculated as equity turnover value (Ksh million)/ Market capitalization (Ksh million) 27 Stock Turnover Ratio (%) 01-Apr-19 01-Apr-19 18-Apr-19 18-Apr-19 05-May-19 05-May-19 22-May-19 22-May-19 08-Jun-19 08-Jun-19 25-Jun-19 25-Jun-19 12-Jul-19 12-Jul-19 29-Jul-19 29-Jul-19 15-Aug-19 15-Aug-19 01-Sep-19 01-Sep-19 18-Sep-19 18-Sep-19 05-Oct-19 05-Oct-19 22-Oct-19 22-Oct-19 08-Nov-19 08-Nov-19 25-Nov-19 25-Nov-19 12-Dec-19 12-Dec-19 29-Dec-19 29-Dec-19 15-Jan-20 15-Jan-20 01-Feb-20 01-Feb-20 18-Feb-20 18-Feb-20 06-Mar-20 06-Mar-20 23-Mar-20 23-Mar-20 09-Apr-20 09-Apr-20 26-Apr-20 26-Apr-20 13-May-20 13-May-20 30-May-20 30-May-20 16-Jun-20 16-Jun-20 03-Jul-20 03-Jul-20 20-Jul-20 20-Jul-20 06-Aug-20 06-Aug-20 23-Aug-20 23-Aug-20 09-Sep-20 09-Sep-20 26-Sep-20 26-Sep-20 13-Oct-20 13-Oct-20 30-Oct-20 30-Oct-20 Figure 37: Foreign trading in the stock market 23,500 160 21,500 144 19,500 128 17,500 112 15,500 96 13,500 80 11,500 64 9,500 48 7,500 32 5,500 16 3,500 0 Average Foreign Participation to Equity Turnover (%) Foreign Purchases (FP) Foreign Sales (FS) Equity Market Turnover (ET) Data Source: Central Bank of Kenya; Sterling Capital Ltd (https://www.sterlingib.com). Figure 38: Stock market performance of selected advanced and emerging markets Figure 38(a): USA stock markets 14,000 29,000 13,000 28,000 12,000 27,000 11,000 26,000 10,000 25,000 9,000 24,000 8,000 23,000 7,000 22,000 6,000 21,000 NYSE Composite Nasdaq 100 Index (NDX) Dow Jones Industrial Average (DJIA) Data source: Country Stock Exchanges; http://www.investing.com 28 NYSE Composite & Nasda 100 Foreign Purchases & Sales, Equity Turnover (KSh. Million) Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Nov-19 Oct-19 Dec-19 Nov-19 Jan-20 Dec-19 Feb-20 Jan-20 Mar-20 Feb-20 Apr-20 Mar-20 May-20 Apr-20 Jun-20 May-20 Jul-20 Jun-20 Aug-20 Jul-20 Sep-20 Aug-20 Oct-20 Sep-20 Oct-20 Dow Jones Industrial Average Average Foreign Participation to Equity Turnover (%) Figure 38(b): European stock markets 9,000 1,150 8,500 1,113 8,000 1,075 7,500 1,038 7,000 1,000 6,500 963 6,000 925 5,500 888 5,000 850 London Stock Exchange Group PLC (LSE) EuroNext 100 (N100) Data source: Country Stock Exchanges; http://www.investing.com Figure 38(c): Asian stock markets 3,700 24,000 3,450 23,460 3,200 22,920 2,950 22,380 2,700 21,840 2,450 21,300 2,200 20,760 1,950 20,220 1,700 19,680 1,450 19,140 1,200 18,600 Shanghai Composite (SSEC) SZSE Composite Index (SZSC) Nikkei 225 (N225) Data source: Country Stock Exchanges; http://www.investing.com 29 SSCE & SZSC London Stock Exchange Apr-19 Apr-19 May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 Aug-19 Aug-19 Sep-19 Sep-19 Oct-19 Oct-19 Nov-19 Nov-19 Dec-19 Dec-19 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 Sep-20 Oct-20 Oct-20 Nikkei 225 EuroNext 100 Figure 38(d): African stock markets 1,860 3,700 1,742 3,500 1,624 3,300 1,507 3,100 2,900 1,389 2,700 1,271 2,500 1,153 2,300 1,035 2,100 918 1,900 800 1,700 682 FTSE South Africa (FTWIZAFL) NSE20 (Kenya) EGX100 (Egypt) NGSE30 (Nigeria) Data source: Country Stock Exchanges; http://www.investing.com 30 FTWIZAFL & NSE20 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 EGX100 & NGSE30 6. Risk-related Factors Figure 39: Kenya purchasing managers’ index Data Source: Stanbic Bank (https://www.stanbicbank.co.ke); IHS-Markit (https://ihsmarkit.com) Key: 50.0 = Neutral; Above 50.0 = Expansion; Below 50.0 = Contraction Figure 40: Mean annual and seasonal rainfall (millimeters) 1,200 1,083.1 1,100 1,000 912.3 900 800 703.9 675.3 700 600 500 400 300 200 100 0 2016 2017 2018 2019 2020 March-May June-August October-December Annual Data Source: Kenya National Bureau of Statistics; Kenya Meteorological Department; https://www.worldweatheronline.com/ 31 Average Rainfall in Milimeters 350.7 104.6 142.8 354.0 104.0 155.0 599.6 191.5 204.3 262.7 65.2 584.4 491.73 277.48 Figure 41: Mean monthly temperature (degrees celsius) 26.50 26.00 25.50 25.00 24.50 24.00 23.50 23.00 22.50 22.00 21.50 21.00 20.50 20.00 2018 2019 2020 Data Source: Kenya Meteorological Department; https://www.worldweatheronline.com/ Table 1: Fitch rating for Kenya Type Current Rating Prior Rating (as at 19 June 2020) (as at 10 December 2019) Rating Outlook Action Rating Outlook Action LTR (Long term B+ Negative Affirmed B+ Evolving Affirmed Issuer default rating) STR (Short-term B Affirmed B Affirmed Issuer default rating) Local Currency B Affirmed B Affirmed Short Term Issuer Default Rating Country Ceiling B+ Downgrade BB- Affirmed Local Currency B+ Negative Affirmed B+ Evolving Affirmed Long Term Issuer Default Rating Data source: https://www.fitchratings.com/entity/kenya-86485911#ratings 32 Mean Monthly Temperature January February March April May June July August September October November December Figure 42: Covid-19 statistics for Kenya, March-October 2020 Cummulative Confirmed Cases Cumulative Deaths 55000 1000 50000 900 45000 800 40000 700 35000 600 30000 500 25000 400 20000 15000 300 10000 200 5000 100 0 0 Cumulative Active Cases Cumulative Recoveries 18000 36000 16000 32000 14000 28000 12000 24000 10000 20000 8000 16000 6000 12000 4000 8000 2000 4000 0 0 Data source: Ministry of Health, Kenya; World Health Organization Figure 43: Growth projections in time of COVID-19 pandemic crisis 8.0 5.9 6.0 5.4 4.8 3.7 4.0 2.9 1.7 2.0 - (2.0) (4.0) (3.0) (6.0) (4.9) (8.0) (8.0) (10.0) 2019 2020 2021 Global Economy Advanced Economies Emerging Markets and Developing Economies Source: International Monetary Fund, World Economic Outlook, June 2020 33 Growth Projections (%) 23-Mar-20 23-Mar-20 05-Apr-20 05-Apr-20 18-Apr-20 18-Apr-20 01-May-20 01-May-20 14-May-20 14-May-20 27-May-20 27-May-20 09-Jun-20 09-Jun-20 22-Jun-20 22-Jun-20 05-Jul-20 05-Jul-20 18-Jul-20 18-Jul-20 31-Jul-20 31-Jul-20 13-Aug-20 13-Aug-20 26-Aug-20 26-Aug-20 08-Sep-20 08-Sep-20 21-Sep-20 21-Sep-20 04-Oct-20 04-Oct-20 17-Oct-20 17-Oct-20 30-Oct-20 30-Oct-20 23-Mar-20 23-Mar-20 05-Apr-20 05-Apr-20 18-Apr-20 18-Apr-20 01-May-20 01-May-20 14-May-20 14-May-20 27-May-20 27-May-20 09-Jun-20 09-Jun-20 22-Jun-20 22-Jun-20 05-Jul-20 05-Jul-20 18-Jul-20 18-Jul-20 31-Jul-20 31-Jul-20 13-Aug-20 13-Aug-20 26-Aug-20 26-Aug-20 08-Sep-20 08-Sep-20 21-Sep-20 21-Sep-20 04-Oct-20 04-Oct-20 17-Oct-20 17-Oct-20 30-Oct-20 30-Oct-20 Figure 44: Vulnerability of Sub-Saharan Africa countries to COVID-19 shock in 2020 Source: International Monetary Fund, World Economic Outlook, April 2020 34 35