JULY– SEPTEMBER 2021 TABLE OF CONTENTS 1. PERFORMANCE IN THE REAL SECTOR ................................................................................ 3 2. INTERNATIONAL MARKETS .................................................................................................... 10 3. MONETARY AND FINANCIAL SECTOR ............................................................................... 16 4. FISCAL PERFORMANCE ............................................................................................................. 21 5. CAPITAL MARKETS ...................................................................................................................... 28 6. RISK-RELATED FACTORS ......................................................................................................... 33 2 1. PERFORMANCE IN THE REAL SECTOR Global economic recovery is gaining momentum, expected to grow by 6.0 per cent in 2021, with emerging markets and developing economies making the highest contribution to this growth. This is attributed to the growing uptake of COVID-19 vaccines, which has reduced cases of hospitalization and allowed easing of movement restrictions, thus improving the business environment. Sub-Saharan Africa is expected to grow by 3.4 per cent in 2021, supported by improved exports, and a recovery of private consumption and investment. The International Monetary Fund (IMF) projects that Kenya’s economy will grow by 6.3 per cent in 2021. The hospitality industry is recovering with higher number of tourist arrivals by air in 2021 compared to 2020, but yet to get to the pre-pandemic levels. Further, the upward trend in cement production and consumption is an indication of a growing construction industry. The overall inflation in Kenya in the July-September quarter of 2021 averaged 6.68 per cent compared to 4.31 per cent in the same quarter in 2020. In the quarter, inflation increased mildly from a low of 6.55 per cent in July 2021 to 6.91 per cent in September 2021. Food and non-alcoholic beverages were the major contributors to overall inflation occasioned by low rainfall (122.43 mm) in the June to August rain season. Fuel prices also exerted inflationary pressure with the continued increase in global oil prices. a) GDP performance Figure 1: GDP growth, inflation, and stock market performance 8 2750.00 7 6 5 2500.00 4 3 2 4.9 2250.00 1 0.7 0 -1 -1.1 2000.00 -2 -3 -5.7 -4 1750.00 -5 -6 -7 1500.00 Quarterly GDP Growth (%) Overall Inflation (%) NSE20 Index Data source: Central Bank of Kenya; Kenya National Bureau of Statistics 3 Inflation and quarterly GDP growth rate (%) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 NSE20 Index Figure 2: Economic performance of selected advanced and emerging markets 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 -15.00 -20.00 -25.00 Oct-Dec 2019 Jan-March April-June July-Sept Oct-Dec 2020 Jan-Mar Apr-June Jan-Dec 2021 2020 2020 2020 2021 2021 Kenya USA UK Japan China France Mexico Brazil S. Africa Data source: Country statistical offices; https://tradingeconomics.com/, IMF World Economic Outlook October 2021. *The January to December 2021 are IMF growth Projections for 2021. Figure 3: Growth projections in time of COVID-19 pandemic crisis 8 6 4 5.9 6.4 5.2 4.9 4.5 5.12 0 -2.1 -3.1 -2 -4.5 -4 -6 2020 2021 2022 Global economy Advanced Economies Emerging markets and developing economies Data Source: International Monetary Fund, World Economic Outlook, October 2021 * 2020 figures are estimates while 2021 and 2020 figures are projections 4 GDP growth rate (%) Year-On-Year GDP Growth Rate (%) Kenya Kenya Kenya Kenya 0.70 7.60 Figure 4: Cement production and consumption (‘000 MT) and index of value of building plans 775 360.00 750 725 320.00 700 675 280.00 650 625 240.00 600 575 200.00 550 160.00 525 500 120.00 475 450 80.00 425 400 40.00 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 5: Kenya Housing and Property Indices 460 130 450 440 125 430 420 120 410 400 115 390 380 110 370 360 105 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) 5 Hass Composite Index Cement production and consumption 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 Nov-20 Nov-20 Dec-20 Dec-20 Jan-21 Jan-21 Feb-21 Feb-21 Mar-21 Mar-21 Apr-21 Apr-21 May-21 May-21 Jun-21 Jun-21 KBA Housing Price Index Index of value of building plans Figure 6: Intake of processed milk in the formal sector (million litres) 70 65 60 55 50 45 40 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Milk intake 2018 Milk intake 2019 Milk intake 2020 Milk intake 2021 Data source: Kenya National Bureau of Statistics Figure 7: 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 2021 Data source: Kenya National Bureau of Statistics (various), Economic Survey *Total tourist arrivals by air 6 Number of tourists Milk intake (million litres) b) Price movement Figure 8: Consumer Price Index and Producer Price Index 117.00 108.5 116.00 108 115.00 107.5 114.00 107 113.00 106.5 112.00 106 111.00 105.5 110.00 105 109.00 104.5 108.00 104 107.00 103.5 106.00 103 105.00 102.5 104.00 102 103.00 101.5 102.00 101 101.00 100.5 100.00 100 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 9: Comparative inflation for selected countries in Africa 33.00 31.00 29.00 27.00 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 7 Inflation rate (%) Consumer Price Index 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 Nov-20 Dec-20 Nov-20 Jan-21 Dec-20 Feb-21 Jan-21 Mar-21 Feb-21 Apr-21 Mar-21 May-21 Apr-21 Jun-21 May-21 Jul-21 Aug-21 Jun-21 Sep-21 Jul-21 Aug-21 Sep-21 Producer Price Index Figure 10: Domestic wholesale agriculture commodity prices (Ksh/Kg) 110.00 100.00 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 *There was no data from the Ministry of Agriculture for May and June 2020 Figure 11: Contribution of selected CPI baskets to overall inflation (%) 5.0000 4.5000 4.0000 3.5000 3.0000 2.5000 2.0000 1.5000 1.0000 0.5000 0.0000 -0.5000 -1.0000 Food & Non-Alcoholic Beverages Housing, Water, Electricity, Gas and other Fuels Clothing & Foot-wear Health Fuel Inflation (%) Data Source: Kenya National Bureau of Statistics and Central Bank of Kenya 8 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 Nov-20 Nov-20 Dec-20 Dec-20 Jan-21 Jan-21 Feb-21 Feb-21 Mar-21 Mar-21 Apr-21 Apr-21 May-21 May-21 Jun-21 Jun-21 Jul-21 Jul-21 Aug-21 Aug-21 Sep-21 Sep-21 Figure 12: Average domestic pump prices and global crude oil prices 145.00 80.00 140.00 75.00 135.00 130.00 70.00 125.00 65.00 120.00 60.00 115.00 110.00 55.00 105.00 50.00 100.00 45.00 95.00 90.00 40.00 85.00 35.00 80.00 30.00 75.00 70.00 25.00 65.00 20.00 60.00 15.00 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 9 Average local retail prices (Ksh/Litre) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 OPEC basket crude oil prices (US$/barrel) 2. INTERNATIONAL MARKETS Production, exports and prices of tea and coffee continued to follow the seasonal patterns depicted in previous years. Coffee exports were higher in 2021 compared to 2020, an indication of increased demand with reopening of global economies. Coffee prices recorded a continued increase for the tenth consecutive month in August 2021, largely attributable to adverse climatic conditions in major producing countries and increasing freight costs. Tea production is lower in 2021 compared to 2020, which could be attributed to the low rainfall received. Tea exports and auction prices are lower than in previous years. In the period July to September 2021, the Kenya shilling (Ksh) depreciated by 2.38 per cent, 0.63 per cent, and 0.22 per cent against the US Dollar, Sterling Pound, and the Euro, respectively. Kenya maintained an average of 5.70 months of import cover, which is higher than the statutory requirements. Diaspora remittances have continuously defied expectations of a dip due to COVID-19, with the highest record of approximately Ksh 34.00 billion in the month of July 2021, a 21.55 per cent increase from the same month in the previous year. The buoyancy of Kenya’s diaspora remittances has been facilitated by financial innovations and more platforms where Kenyans abroad can send money to Kenya conveniently. If Kenyan banks continue to partner with foreign banks to reduce the cost of remittances, diaspora remittances are likely to remain buoyant. Figure 13: Trends in coffee and tea production (MT), exports (Ksh millions) and auction prices (Ksh/Kg) Figure 13(a): Monthly coffee production (MT) 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2021 2018 2019 Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/) 10 Coffee production (MT) Figure 13(b): Monthly coffee exports (Ksh million) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2021 2018 2019 Data source: Kenya National Bureau of Statistics; Nairobi Coffee Exchange (http://nairobicoffeeexchange.co.ke/); Figures for January and February 2020 are provisional. Figure 13(c): Comparison between global coffee exports (MT) and Kenya coffee exports (% of global total exports) 770,000 1.00 745,000 0.90 720,000 0.80 695,000 0.70 670,000 0.60 645,000 0.50 620,000 0.40 595,000 0.30 570,000 0.20 545,000 0.10 520,000 - 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) 11 Global coffee exports(MT) Kenya Coffee Exports (Ksh million) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Kenya Coffee Exports (% of Global Exports) Figure 13(d): Monthly Kenya coffee auction prices (Ksh/Kg) and global composite prices (US cents/lb) 800.00 200.00 700.00 600.00 150.00 500.00 400.00 100.00 300.00 200.00 50.00 100.00 - - Global Coffee Composite Prices (US cents / lb), 2019 Global Coffee Composite Prices (US cents / lb), 2020 Global Coffee Composite Prices (US cents / lb), 2021 Kenya Coffee Auction Prices (KSh./Kg), 2019 Kenya Coffee Auction Prices (KSh./Kg), 2020 Kenya Coffee Auction Prices (KSh./Kg), 2021 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 13(e): Monthly tea production (MT) 58,000.00 55,000.00 52,000.00 49,000.00 46,000.00 43,000.00 40,000.00 37,000.00 34,000.00 31,000.00 28,000.00 25,000.00 2020 2021 2018 2019 Data source: Kenya National Bureau of Statistics; East African Tea Trade Association 12 Kenya Tea Production (MT) Kenya Coffee Auction Prices (Ksh/Kg) January January February February March March April April May May June June July July August August September September October November October December November December Global Composite Coffee Prices (US cents/lb) Figure 13(f): Monthly tea exports (Ksh million) 16,000.00 15,000.00 14,000.00 13,000.00 12,000.00 11,000.00 10,000.00 9,000.00 8,000.00 7,000.00 2020 2021 2018 2019 Data source: Kenya National Bureau of Statistics; East African Tea Trade Association Figure 13(g): Monthly Kenya tea auction prices (Ksh/Kg) 320.00 310.00 300.00 290.00 280.00 270.00 260.00 250.00 240.00 230.00 220.00 210.00 200.00 190.00 2020 2021 2018 2019 Data Source: KNBS; East Africa Tea Trade Association; Mombasa Tea Auction 13 Kenya Tea Auction Prices (Ksh/Kg) Kenya Tea Exports (Ksh million) January January February February March March April April May May June June July July August August September October September November October December November December Figure 14: The exchange rate of Kenya shilling to global currencies 160 106 155 104 150 145 102 140 100 135 98 130 125 96 120 94 115 92 110 105 90 100 88 95 86 90 85 84 80 82 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 Figure 15: The exchange rate of Kenya shilling to regional currencies 0.12 8.25 0.11 8 0.1 7.75 7.5 0.09 7.25 0.08 7 0.07 6.75 0.06 6.5 0.05 6.25 0.04 6 0.03 5.75 0.02 5.5 KES/USHS KES/TSHS KES/RWF KES/BIF KES/SA RAND Data source: Central Bank of Kenya 14 Units of Ksh for 1 Ush, Tsh, RWF, BIF Units of Ksh to 1 US$, STG-Pound, Euro 01-Jan-20 01-Jan-20 23-Jan-20 23-Jan-20 14-Feb-20 14-Feb-20 07-Mar-20 07-Mar-20 29-Mar-20 29-Mar-20 20-Apr-20 20-Apr-20 12-May-20 12-May-20 03-Jun-20 03-Jun-20 25-Jun-20 25-Jun-20 17-Jul-20 17-Jul-20 08-Aug-20 08-Aug-20 30-Aug-20 30-Aug-20 21-Sep-20 21-Sep-20 13-Oct-20 13-Oct-20 04-Nov-20 04-Nov-20 26-Nov-20 26-Nov-20 18-Dec-20 18-Dec-20 09-Jan-21 09-Jan-21 31-Jan-21 31-Jan-21 22-Feb-21 22-Feb-21 16-Mar-21 16-Mar-21 07-Apr-21 07-Apr-21 29-Apr-21 29-Apr-21 21-May-21 21-May-21 12-Jun-21 12-Jun-21 04-Jul-21 04-Jul-21 26-Jul-21 26-Jul-21 17-Aug-21 17-Aug-21 08-Sep-21 08-Sep-21 30-Sep-21 30-Sep-21 Units of Ksh for 1 SA RAND US Dollar Index Figure 16: Performance of select currencies against the US Dollar 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% Sept 2018-Sept 2019 Sept 2019 to Sept 2020 Sept 2020-Sept 2021 KES/USD UGX/USD TZS/USD RWF/USD BIF/USD S.A Rand/USD NAD/USD ZMW/USD GHS/USD NGN/USD ETB/USD USD index 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 Figure 17: Months of import cover and diaspora remittances 6.1 355.0 344.0 5.9 333.0 322.0 5.7 311.0 300.0 5.5 289.0 278.0 5.3 267.0 5.1 256.0 245.0 4.9 234.0 223.0 4.7 212.0 201.0 4.5 190.0 Diaspora Remittances (USD '000) Months of Import cover Data Source: Central Bank of Kenya 15 Months of Import Cover % change in currency against the US$ Jan-20 Feb-20 Kenya Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Kenya Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 Kenya May-21 Jun-21 Jul-21 Aug-21 Sep-21 Diaspora Remittances (US$ million) Appreciation Depreciation 3. MONETARY AND FINANCIAL SECTOR Noting that inflation remained anchored within the target range and that the economy was recording recovery in various sectors, an accommodative monetary policy stance was maintained, with the policy rate at 7.00 per cent during the Monetary Policy Committee of Central Bank of Kenya meeting on 28th September 2021. Similarly, most Central Banks in the region maintained accommodative monetary policy stance to stimulate economic activities. The 91-day, 182-day and 364-day Treasury bills’ interest rates increased mildly from 6.58 per cent, 7.07 per cent and 7.54 per cent in July 2021 to 6.83 per cent, 7.25 per cent and 7.57 per cent in September 2021, respectively. Deposit rates have reduced to a low of 6.34 per cent, a 10.83 per cent drop after the removal of interest rates cap. There was a slight increase in the value of mobile money transactions in the second quarter of 2021, while the number of transactions and subscribers remained relatively constant. The increase in the number of mobile transactions in the second quarter of 2021 serves as an indication that most Kenyans have adapted to cashless transactions, a phenomenon that robustly started as a way of avoiding physical contact when COVID-19 pandemic began. Banks registered a recovery in 2021 with a higher return on assets in 2021 compared to 2020. There was a decrease in the ratio of non-performing loans to gross loans since March 2021, indicating reduced credit risk to the banking sector. This was expected following the ease of movement restrictions and recovery of businesses, which has improved liquidity positions of the private sector. Figure 18: Treasury bill weighted average rate (%) 10.500 10.000 9.500 9.000 8.500 8.000 7.500 7.000 6.500 6.000 91-Day 182-Day 364-Day Data source: Central Bank of Kenya 16 01-Jan-20 23-Jan-20 14-Feb-20 07-Mar-20 29-Mar-20 20-Apr-20 12-May-20 03-Jun-20 25-Jun-20 17-Jul-20 08-Aug-20 30-Aug-20 21-Sep-20 13-Oct-20 04-Nov-20 26-Nov-20 18-Dec-20 09-Jan-21 31-Jan-21 22-Feb-21 16-Mar-21 07-Apr-21 29-Apr-21 21-May-21 12-Jun-21 04-Jul-21 26-Jul-21 17-Aug-21 08-Sep-21 30-Sep-21 Figure 19: Interbank rate and volume, Repos, and other interest rates (%) Data source: Central Bank of Kenya 17 Figure 20: Commercial banks’ excess reserves (%) in relation to the CRR 6.50 6.00 5.50 5.00 4.50 4.00 Data source: Central Bank of Kenya; CRR = Cash Reserves Requirement; CRR before March 2020=5.25%, CRR after March 2020= 4.25% Figure 21: Mobile money transactions 200 650.00 180 620.00 590.00 160 560.00 140 530.00 120 500.00 100 470.00 80 440.00 410.00 60 380.00 40 350.00 20 320.00 0 290.00 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 Subscriptions and Transactions (number) Commercial Banks' excess reserves in relation to the CRR Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 Jun-20 May-20 Jul-20 Jun-20 Aug-20 Jul-20 Sep-20 Aug-20 Oct-20 Sep-20 Nov-20 Oct-20 Dec-20 Nov-20 Jan-21 Dec-20 Feb-21 Mar-21 Jan-21 Apr-21 Feb-21 May-21 Mar-21 Jun-21 Apr-21 May-21 Jun-21 Value of Transactions (Kshs. Billion) Figure 22: Kenya banking sector performance Figure 22(a): Return on asset (%) 4.000 3.500 3.000 2.500 2.000 1.500 1.000 0.500 0.000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2021 2018 2019 Data Source: Calculated using data from Central Bank of Kenya Figure 22(b): Liquidity ratio and ratio of gross NPL to gross loans 14.70% 57.4 14.60% 14.50% 14.40% 14.30% 56.4 14.20% 14.10% 14.00% 55.4 13.90% 13.80% 13.70% 54.4 13.60% 13.50% 13.40% 13.30% 53.4 13.20% 13.10% 13.00% 52.4 12.90% 12.80% 12.70% 51.4 12.60% 12.50% 12.40% 12.30% 50.4 12.20% 12.10% 12.00% 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/Gross loans (%) Return on Assets (%) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Liquidity Ratio (%) Figure 23: Banking sector credit 40 12.00 35 10.00 30 8.00 25 20 6.00 15 4.00 10 2.00 5 0 - Publc Sector Proportion of the Banking sector credit (%) Manufacturing sector credit proportion (%) Private Sector Credit Growth (%) Data Source: Central Bank of Kenya Figure 24: 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 Data Source: Country Central Banks 20 Public and Manufacturing Sector Proportion of Banking Sector Credit (%) 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 Nov-20 Oct-20 Dec-20 Nov-20 Jan-21 Dec-20 Feb-21 Jan-21 Mar-21 Feb-21 Apr-21 Mar-21 May-21 Apr-21 Jun-21 May-21 Jul-21 Jun-21 Aug-21 Sep-21 Private Sector Credit Growth (%) 4. FISCAL PERFORMANCE The 2021/22 financial year budget estimates were revealed on 10th June 2021 with an estimated annual budget of Ksh 3.03 trillion, a 4.80 per cent increase from last year’s budget. The fiscal deficit of Ksh 929.70 billion will be financed through external borrowing (Ksh 271.20 billion–29%) and domestic borrowing (Ksh 658.50 billion–71%). Turning on to revenues for 2021/22, the cumulative actual national revenue receipts as of 30th September 2021 totaled Ksh 760.93 billion compared to a total of Ksh 735.97 billion in September 2020, an increase of 3.39 per cent. However, the receipts were lower than the quarterly target of Ksh 798.24 billion. The exchequer allocation for development expenditure to the Ministry of Health as a percentage of total issues to Ministries, Departments and Agencies (MDAs) increased from 3.66 per cent in September 2020 to 13.29 per cent in September 2021. This is attributable to the continued government efforts to support the health sector in combating the COVID-19 pandemic. The recurrent allocation of the sector as a percentage of total issues also increased to 4.24 per cent in September 2021 from 4.14 per cent in September 2020. Public debt increased to Ksh 7.17 trillion in June 2021, with increased borrowing related to the COVID-19, of which about 48.89 per cent was domestic debt. In the July-September quarter of 2021, the proportion of domestic debt held in treasury bonds rose to 77.88 per cent from 70.49 per cent in a similar quarter in 2020. Banks continue to be the largest holders of Kenya’s domestic debt with a share of 50.94 per cent in the quarter. Figure 25: Fiscal deficit and county transfers (Ksh billion) 500 400 300 200 100 0 -100 -200 -300 -400 -500 -600 -700 -800 Fiscal Deficit 2019/20 County Transfer 2019/20 Fiscal deficit 2020/21 -900 County transfer 2020/21 Fiscal deficit 2021/22 County transfer 2021/22 Data Source: Calculated using data from Central Bank of Kenya and The National Treasury data published on monthly Kenya Gazette Notices 21 July August September October November December January February March April May June Figure 26: Monthly utilization of revenue against target Figure 26(a): National revenue (Ksh billion) 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 2019/2020 Actual revenue 2020/2021 Actual revenue 2021/22 Actual revenue 2019/2020 Target revenue 2020/2021 Target revenue 2021/22 Target revenue Data Source: Monthly Gazette Notices, The National Treasury and Planning Figure 26 (b): Exchequer issues to national government (Ksh billion) 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 Actual 2019/2020 Actual 2020/2021 Actual 2021/2022 Target 2019/2020 Target 2020/2021 Target 2021/2022 Data Source: Monthly Gazette Notices, The National Treasury and Planning 22 Target and Actual issues to National Government Target and Actual revenue (Kshs. Billions) (Kshs. Billions) July July August August September September October October November November December December January January February February March March April April May May June June Figure 26 (c): Exchequer issues to county governments (Ksh billion) 450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 Actual 2019/2020 Actual 2020/2021 Actual 2021/2022 Target 2019/2020 Target 2020/2021 Target 2021/2022 Data Source: Monthly Gazette Notices, The National Treasury and Planning Figure 26 (d): Exchequer balance as a percentage of actual revenue (%) 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2019/2020 2020/2021 2021/22 Data Source: Monthly Gazette Notices, The National Treasury and Planning 23 Target and Actual issues to County Governments (Kshs. Billions) July August July August September September October October November November December December January January February February March March April April May May June June Figure 27: Exchequer allocation to Ministry of Health as a % of total issues to Ministries, Agencies and Departments 30.00 25.00 20.00 15.00 10.00 5.00 - 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 28: Composition of government revenue (Ksh billion) 6000 5000 4000 3000 2000 1000 0 July-Sept Oct-Dec 2019 Jan-March April-June July-Sep 2020Oct-Dec 2020Jan-Mar 2021 April-June 2019 2020 2020 2021 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 24 Recurrent & Development Issues (%) to Health Revenue (KSh. Billion) Sector 697.44 59.42 Jan-20 5.72 781.01 Feb-20 1,864.45 Mar-20 358.37 28.24 Apr-20 2,251.04 May-20 2,989.92 Jun-20 372.45 37.63 Jul-20 3,599.29 Aug-20 4,023.54 342.67 Sep-20 30.39 4,396.61 Oct-20 Nov-20 598.45 97.34 Dec-20 5.3 701.09 Jan-21 1934.27 Feb-21 312.05 18.7 Mar-21 1946.26 Apr-21 2722.613 May-21 292.252 129.911 Jun-21 3145.386 Jul-21 3983.41 736.98 Aug-21 91.14 4811.53 Sep-21 Figure 29: Growth in tax revenue (%) and quarterly GDP growth (%) 12.00 10.55 9.77 9.09 7.00 6.4 6.00 3.57 2.00 Q1-2019 - Q1-2020 Q2-2019 - Q2-2020 Q3-2019-Q3-2020 Q4-2019-Q4-2020 Q1-2020-Q1-2021 -3.00 -8.00 -8.94 -13.25 -13.00 -14.19 -18.00 Nominal Quarterly GDP Growth Nominal Tax Revenue Growth Data Source: Kenya National Bureau of Statistics and Central Bank of Kenya Figure 30: Total debt (Ksh billion) and proportionate shares of domestic and foreign debt 10,000.00 9,000.00 8,000.00 7,000.00 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 Domestic debt Public & Publicly Guaranteed External debt Total Debt Debt ceiling Data Source: Calculated using data from Central Bank of Kenya 25 KSh. Billions Growth in Tax Revenue and Quarterly GDP (%) Dec-19 49.37% 50.63% Mar-20 48.34% 51.66% Jun-20 49.79% 50.21% Sep-20 47.96% 52.04% Dec-20 47.86% 52.14% Mar-21 48.64% 51.36% Jun-21 48.89% 51.11% Figure 31: Composition of government domestic debt by instrument (%) 100% 90% 80% 70% 67.67 68.94 70.49 60% 72.92 75.82 76.85 77.882 50% 40% 30% 20% 29.86 28.58 28.33 10% 24.91 21.94 20.78 19.927 0% Jan-March 2020 April-June 2020 July-Sept 2020 October-Dec Jan-Mar 2021 Apr-Jun 2021 Jul-Sep 2021 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 32: Composition of government domestic debt by holder (%) 100% 4.34 4.29 4.4 4.28 4.53 4.38 6.01 90% 80% 28.38 28.59 29.16 31.67 29.24 30.17 31 70% 6.97 6.30 5.77 60% 5.59 5.62 5.666.33 6.2 5.386.51 6.18 6.31 6.47 6.67 50% 40% 30% 53.80 54.49 54.46 54.6 54.24 53.33 50.94 20% 10% 0% Jan-March 2020 April-June 2020 July-Sept 2020 October-Dec Jan-Mar 2021 Apr-Jun 2021 Jul-Sept 2-21 2020 Banking Institutions Insurance Companies Parastatals Pension Funds Other investors Data Source: Calculated using data from Central Bank of Kenya 26 Figure 33: 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 Jan-March 2020 April-June 2020 July-Sept 2020 Oct-Dec 2020 Jan-Mar 2021 Apr-Jun 2021 Bilateral Multilateral Commercial Banks Export Credit Data Source: Calculated using data from Central Bank of Kenya 27 % of External Debt 32.65 33.00 33.81 33.04 33.00 33.42 30.01 38.80 30.70 30.40 39.42 29.84 30.40 39.67 29.46 29.62 40.70 29.21 5. CAPITAL MARKETS Following the reopening of economies and the resumption of businesses, the US, European, and Asian stock markets continued with an upward trend, implying that these markets are slowly becoming resilient to the COVID-19 pandemic. The stock market in Kenya also showed a steady recovery since November 2020. This is attributable to increased economic activities following the reopening of the economy as facilitated by accommodative monetary stances in the economy and the ongoing vaccination. However, the NSE index is yet to get back to the levels before the pandemic. The 10-year Kenya Eurobond (2024) yield continued to decline in the third quarter of 2021, an indication that the international market has regained confidence in Kenya’s creditworthiness. Figure 34: Bond volumes traded (Ksh million) and FTSE NSE Kenya government bond price Index 99.00 117600.00 98.50 108800.00 98.00 100000.00 91200.00 97.50 82400.00 97.00 73600.00 96.50 64800.00 96.00 56000.00 95.50 47200.00 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 28 FTSE NSE Kenya Government Bond Price Index Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Bond Volumes Traded (KSh. Million) Figure 35: The 10-year Kenya Eurobond (2024) yield (%) 11.000 10.500 10.000 9.500 9.000 8.500 8.000 7.500 7.000 6.500 6.000 5.500 5.000 4.500 4.000 3.500 3.000 2.500 2.000 10-year Eurobond Yield - 2024 (%) Data Source: Central Bank of Kenya Figure 36: Stock market performance 3000.00 2800.00 2600.00 2400.00 2200.00 2000.00 1800.00 1600.00 NSE20 Index Mkt Cap (KSh Bn) Data Source: Nairobi Securities Exchange 29 Yield (%) 01-Jan-20 23-Jan-20 01-Jan-20 23-Jan-20 14-Feb-20 14-Feb-20 07-Mar-20 07-Mar-20 29-Mar-20 29-Mar-20 20-Apr-20 20-Apr-20 12-May-20 12-May-20 03-Jun-20 03-Jun-20 25-Jun-20 25-Jun-20 17-Jul-20 17-Jul-20 08-Aug-20 08-Aug-20 30-Aug-20 30-Aug-20 21-Sep-20 21-Sep-20 13-Oct-20 13-Oct-20 04-Nov-20 04-Nov-20 26-Nov-20 26-Nov-20 18-Dec-20 18-Dec-20 09-Jan-21 09-Jan-21 31-Jan-21 31-Jan-21 22-Feb-21 22-Feb-21 16-Mar-21 16-Mar-21 07-Apr-21 07-Apr-21 29-Apr-21 29-Apr-21 21-May-21 21-May-21 12-Jun-21 12-Jun-21 04-Jul-21 04-Jul-21 26-Jul-21 26-Jul-21 17-Aug-21 17-Aug-21 08-Sep-21 08-Sep-21 30-Sep-21 30-Sep-21 Figure 37: Stock value turnover ratio (%) 0.00200 0.00180 0.00160 0.00140 0.00120 0.00100 0.00080 0.00060 0.00040 0.00020 0.00000 Data Source: Nairobi Securities Exchange; Calculated as equity turnover value (Ksh million)/ Market capitalization (Ksh million) Figure 38: Foreign trading in the stock market 23,500.00 160.00 21,500.00 144.00 19,500.00 128.00 17,500.00 112.00 15,500.00 96.00 13,500.00 80.00 11,500.00 64.00 9,500.00 48.00 7,500.00 32.00 5,500.00 16.00 3,500.00 0.00 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) 30 Foreign Purchases and Sales, Equity Turnover (Ksh. Stock Turnover Ratio Million) 01-Jan-20 Jan-20 23-Jan-20 14-Feb-20 Feb-20 07-Mar-20 Mar-20 29-Mar-20 Apr-20 20-Apr-20 May-20 12-May-20 Jun-20 03-Jun-20 Jul-20 25-Jun-20 Aug-20 17-Jul-20 08-Aug-20 Sep-20 30-Aug-20 Oct-20 21-Sep-20 Nov-20 13-Oct-20 Dec-20 04-Nov-20 Jan-21 26-Nov-20 Feb-21 18-Dec-20 09-Jan-21 Mar-21 31-Jan-21 Apr-21 22-Feb-21 May-21 16-Mar-21 Jun-21 07-Apr-21 Jul-21 29-Apr-21 Aug-21 21-May-21 Sep-21 12-Jun-21 04-Jul-21 26-Jul-21 17-Aug-21 Average Foreign Participation to Equity Turnover 08-Sep-21 (%) 30-Sep-21 Figure 39: Stock market performance of selected advanced and emerging markets (a): USA stock markets 17,000 37,000 16,000 35,000 15,000 14,000 33,000 13,000 31,000 12,000 29,000 11,000 10,000 27,000 9,000 25,000 8,000 23,000 7,000 6,000 21,000 NYSE Composite Nasdaq 100 Index (NDX) Dow Jones Industrial Average (DJIA) Data source: Country Stock Exchanges; http://www.investing.com (b): European stock markets 9,000 1,300 1,263 8,500 1,225 8,000 1,188 1,150 7,500 1,113 7,000 1,075 1,038 6,500 1,000 6,000 963 925 5,500 888 5,000 850 London Stock Exchange Group PLC (LSE) EuroNext 100 (N100) Data source: Country Stock Exchanges; http://www.investing.com 31 London Stock Exchange NYSE Composite & Nasda 100 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 Nov-20 Nov-20 Dec-20 Dec-20 Jan-21 Jan-21 Feb-21 Feb-21 Mar-21 Mar-21 Apr-21 Apr-21 May-21 May-21 Jun-21 Jun-21 Jul-21 Jul-21 Aug-21 Aug-21 Sep-21 Sep-21 EuroNext 100 Dow Jones Industrial Average (c): Asian stock markets 3,950 30,480 29,940 3,700 29,400 28,860 3,450 28,320 27,780 3,200 27,240 26,700 2,950 26,160 25,620 2,700 25,080 24,540 2,450 24,000 23,460 2,200 22,920 22,380 1,950 21,840 21,300 1,700 20,760 20,220 1,450 19,680 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 (d): African stock markets 4,000 15,500 3,500 14,500 13,500 3,000 12,500 2,500 11,500 2,000 10,500 1,500 9,500 1,000 8,500 500 7,500 FTSE South Africa (FTWIZAFL) NSE20 (Kenya) NGSE30 (Nigeria) EGX30 (Egypt) Data source: Country Stock Exchanges; http://www.investing.com 32 FTWIZAFL, NGSE30, and NSE20 indices SSCE & SZSC 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 Nov-20 Nov-20 Dec-20 Dec-20 Jan-21 Jan-21 Feb-21 Feb-21 Mar-21 Mar-21 Apr-21 Apr-21 May-21 May-21 Jun-21 Jun-21 Jul-21 Jul-21 Aug-21 Aug-21 Sep-21 Sep-21 EGX30 index Nikkei 225 6. RISK-RELATED FACTORS The Purchasing Managers’ Index (PMI) has increased from a low of 41.50 in April 2021 to a high of 52.50 in May 2021, then a slight drop to 50.40 in September 2021. April’s contraction can be largely attributed to the renewed COVID-19 travel restrictions and lockdown of some zoned counties. The country recorded an average rainfall of 122.43mm in June-August 2021, which was lower than that recorded in the same season in the previous year. This contributed to increased prices of food in July-September 2021. In terms of credit rating for Kenya, the March 2021 fitch rating indicates a negative outlook for long-term issuer default rating and local currency long-term issuer default rating. The rise in COVID-19 cases continues to pose a threat to the economy, although there has been a relatively low positivity rate in the July to September 2021 quarter. Figure 40: Kenya purchasing managers’ index 60.0 58.0 56.0 54.0 52.0 50.0 48.0 46.0 44.0 42.0 40.0 38.0 36.0 34.0 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 33 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Figure 41: Mean annual and seasonal rainfall (millimeters) 1200 1000 800 600 400 200 0 March-May June-August October-December Annual 2018 2019 2020 2021 Data Source: Kenya National Bureau of Statistics; Kenya Meteorological Department; https://www.worldweatheronline.com/ Figure 42: Mean monthly temperature (degrees Celsius) 27.00 26.00 25.00 24.00 23.00 22.00 21.00 20.00 19.00 2018 2019 2020 2021 Data Source: Kenya Meteorological Department; https://www.worldweatheronline.com/ 34 Mean Monthly Temperature January February March April May June July August September October November December Table 1: Fitch rating for Kenya Type Current Rating Prior Rating (as at 26 March 2021) (as at 19 June 2020) Rating Outlook Action Rating Outlook Action LTR (Long term B+ Negative Affirmed B+ Negative Affirmed Issuer default rating) STR (Short-term B Affirmed B Affirmed Issuer default rating) Local Currency Short B Affirmed B Affirmed Term Issuer Default Rating Country Ceiling B+ Affirmed B+ Downgrade Local Currency Long B+ Negative Affirmed B+ Negative Affirmed Term Issuer Default Rating Data source: https://www.fitchratings.com/entity/kenya-86485911#ratings Figure 43: Kenya COVID-19 positivity rate (%) 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Data Source: https://ourworldindata.org/coronavirus/country/kenya *Positivity rate is calculated by dividing the number of new cases with the sample tested. 35 01-Apr-20 15-Apr-20 29-Apr-20 13-May-20 27-May-20 10-Jun-20 24-Jun-20 08-Jul-20 22-Jul-20 05-Aug-20 19-Aug-20 02-Sep-20 16-Sep-20 30-Sep-20 14-Oct-20 28-Oct-20 11-Nov-20 25-Nov-20 09-Dec-20 23-Dec-20 06-Jan-21 20-Jan-21 03-Feb-21 17-Feb-21 03-Mar-21 17-Mar-21 31-Mar-21 14-Apr-21 28-Apr-21 12-May-21 26-May-21 09-Jun-21 23-Jun-21 07-Jul-21 21-Jul-21 04-Aug-21 18-Aug-21 01-Sep-21 15-Sep-21 29-Sep-21 Figure 44: Other COVID-19 statistics for Kenya, April 2020- September 2021 Data Source: World Health Organization, https://www.worldometers.info/coronavirus/country/kenya/ 36