3 July 2018

East Africa: Kenya, Tanzania Well Placed to Weather Shocks, Says Moody's

Kenya and Tanzania are likely to be the most resilient against economic shocks because of their diversification and economic size, a new report by rating agency Moody's says.

The agency noted both countries' gross domestic product per capita either exceeded or was close to Ksh300,000 ($3000) in 2016 on purchasing power parity (PPP) basis--on the strength of what a given unit of the currency can buy in each country.

"The size of the economy, as measured by nominal GDP in US dollar terms, acts as a proxy for diversification in the economy and capacity to generate sufficient and stable revenue to service sovereign debt. Kenya is the largest of the four East African economies... Tanzania's economy is also larger than the B-rated median (countries)," said Moody's.

While Kenya's GDP growth is likely to be in the range of five to six per cent in the next two years, that is 2018 and 2019, that of Tanzania is projected to be in the region of 6.5 and 7.5 per cent.

Tanzania ranks with Rwanda in terms of the economic growth rate for the next two years.

Resilience

Kenya has already shown resilience with regard to multiple shocks last year - drought, elections and interest rate caps - but still managed a 4.9 per cent economic growth rate, Moody's noted.

"The Kenyan economy is more diversified than its regional peers. The diverse growth drivers has supported Kenya's relatively high and stable growth rates over the past decade.

"This comes in spite of the economy being hit by multiple shocks in recent years, including droughts that weighed on agricultural activity, political uncertainty in 2017that weighed on business and consumer sentiment, and the negative impact of the interest rate cap on bank lending," said the agency.

"We expect growth to remain highest in Rwanda and Tanzania. By and large, our expectations for real GDP growth rates of 5-6 per cent in Uganda and Kenya, and 6.5-7.5 per cent in Tanzania and Rwanda," said Moody's.

For the east African region covering four countries including Uganda, Moody's said that the growth is likely to be among the highest in sub-Saharan African.

"The East Africa region's economies of Kenya, Tanzania, Rwanda, and Uganda will remain among the fastest growing economies in sub-Saharan Africa and globally," said the agency.

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