Theme: Fiscal Consolidation Presented By: Britam Asset Managers
Date: February 23rd 2016
1
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Presentation Outline
2
PART ONE: WHO WE ARE
I. Overview of Britam Group
II. Introduction to Britam Asset Managers
PART TWO: FISCAL CONSOLIDATION
I. Fiscal Stimulus – Fast tracking growth to middle income status
II. Fiscal Discipline – Consolidating on previous gains
III. Summary & Outlook
IV. Questions & Answers
PART ONE: WHO WE ARE
3
I. Overview of Britam Group
• About Britam
• Our Regional Presence
• Our Journey
• Corporate & Business Leadership
II. Introduction of Britam Asset Managers
• About Britam Asset Managers
• Asset Management Executive Team
• Britam Asset Managers Growth
• Our Accolades
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0.6
1.0% 1.0%
Britam Holdings Limited
Insurance
Business
Asset
Management
Banking
Business
• Life Insurance
• General
Insurance
• Health Insurance
• Pension
Business
• Unit Trust Funds
• Discretionary
• Property
• Diaspora Service
• Equity Bank
Stake – 10%
• Housing
Finance Stake –
48%
• Britam Properties-
100%
Property
Business
4
About Britam
• Britam is a diversified financial services group, listed on the Nairobi Securities Exchange
• The group has interests across the Eastern and Southern Africa region, with Operations in Kenya,
Uganda, Tanzania, Rwanda, South Sudan, Mozambique and Malawi
• The group offers a wide range of financial products and services in Insurance, Asset management,
Banking and Property
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Our Regional Presence
1965 2016
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First Branch 1970s
Today
End of 2016 Our Journey
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Dr. Benson I. Wairegi EBS
• Group Managing Director
“ Experienced, dynamic and cohesive leadership team and staff”
Kenneth Kaniu
• Chief Executive Officer, Britam Asset Managers
Gladys Karuri
• Director, Group Finance & Strategy
Corporate & Business Leadership
Muthoga Ngera
• Director, Marketing & Corporate Affairs
Nancy K. Kiruki
• Director, Legal & Company Secretary
Stephen O. Wandera
• Director, Insurance
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•Development
Funds
• Income Funds
•Land, site &
service
Real Estate /
Property
•Unit Trust
Funds
•Discretionary
•Pensions
•Cash
Management
Solution
•Wealth
Management
•Diaspora
Services
Public Markets Business Alternative Markets Business
Private
Equity
About Britam Asset Managers
Asset Management Businesses
Vanilla
Products
Structured
Products
Offshore
•Private Equity
Funds
8
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Investments
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Elizabeth Irungu,
CFA
• Senior Portfolio
Manager
Anne Kibebe
• Business
Development
Manager
Miriam Kahiro
• Legal Manager
Passy Ndirangu
• Business
Development
Manager
Charles Chirchir
• Chief Operating
Officer
Asset Management Executive Team
Kenneth Kaniu
• Chief Executive
Officer
Emily Kariuki
CPA
• Fund Services
Manager
John Etyang
• Head, Business
Development
Janet Waweru
CPA
• Chief
Accountant
Dennis Katei
• Compliance
Manager
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2 4 5 6
16 18
26
37
55
90
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AU
M
in K
ES
B
illio
ns
Years
Britam Asset Managers Growth
10
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Britam Asset Managers Clinched the Fund Manager of the Year Award for three
consecutive years (2011-2013) and the Unit Trust of the Year Award in 2012 and 2013
Think Business Awards 2014-2015
1. Best Performing Equity Fund - Winner
2. Fund Manager of the year, Equity Fund – Winner
3. Unit Trust of the Year – Winner
4. Fund Manager of the year Alternative Investments & Private Equity – Winner
5. Fund Manager of the year Overall - 1st Runners up
6. Most innovative Trust - 1st Runners up
7. Best Trust in Quality Client Service - 1st Runners up
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Our Accolades
PART TWO: FISCAL CONSOLIDATION
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I. Fiscal Stimulus – Fast tracking growth to middle income status
• Kenya’s growth story and journey
• Hurdles faced along the way
II. Fiscal Discipline – Consolidating on previous gains
• Expenditure Review
• Funding Review
• Fiscal Deficit Evolution
III. Summary & Outlook
• 2016 GDP Growth Outlook
IV. Questions & Answers
I. Fiscal Stimulus: Fast tracking
growth to middle income status
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Kenya: A Diversified Economy
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Agriculture
Manufacturing
Real Estate
Trade
Education
Transport
Financial
Services
Construction
ICT
Tourism
2010 2015 2010 2015
24% 23%
12% 11%
8% 8%
7% 8%
6% 7%
7% 6%
3% 3%
4% 5%
6% 6%
2% 1%
• The total contribution of the 4 major sectors has reduced from 50.7% in 2010 to 49.6% in Q3 2015,
indicating increased diversification of Kenya’s GDP
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Vision 2030
VISION 2030
ECONOMIC
• Tourism
• Agriculture
• Trade
• Manufacturing
• Financial Services
SOCIAL
• Education
• Healthcare
• Water & Sanitation
• Environment
• Housing
POLITICAL
• People centered,
result oriented,
accountable &
democratic
political system
Key Focus Pillar
KEY PILLARS
The Second Medium term plan (2013-2017) aims to maintain a stable
macroeconomic environment to facilitate:-
Modernization of Infrastructure
Diversification of Agriculture
Increased contribution of manufacturing to GDP
Food security
SE
CO
ND
ME
DIU
M
TE
RM
PL
AN
(2
01
3 –
20
17
)
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GDP Growth
6.1%
4.6%
5.7% 5.3% 5.4% 5.4%
5.0%
4.3%
4.9% 4.6%
3.4%
4.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2011 2012 2013 2014 2015E Average
Kenya Real GDP Sub Saharan Africa Real GDP
Source: World Bank
Kenya’s GDP growth has outpaced Sub Saharan Africa counterparts
• Kenya has achieved an average GDP growth rate of 5.4% over the last 5 years, compared to 4.4%
achieved by its Sub - Saharan Africa peers due to infrastructure spending and consumer demand
• Economic diversification propelled Kenya’s growth in the face of weakening global conditions
that adversely affected commodity exporters as demand and prices declined
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Key Sectors
Source: Kenya National Bureau of Statistics, BAM Estimates, *Q3 2015 annualized figures
With Trade and Real Estate the best performers
• Kenya’s economic growth has been driven by strong performance in trade and real estate, which
have grown by 7.2% and 4.4% respectively since 2012
• Agriculture and manufacturing have also registered robust growth rates of 4.3% and 3.0%
respectively over the same period. These have all combined to result in the realized growth rates
2.9%
5.2%
3.5%
5.5%
-0.6%
5.6%
3.4% 3.6%
7.0%
8.5%
6.9% 6.3%
4.0% 4.1%
5.6%
3.9%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2012 2013 2014 *Q3 2015
Agriculture Manufacturing Trade Real Estate
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Inflation has largely been contained in recent years
• After touching 14.0% in 2011, inflation has come down considerably, remaining within the CBK
range of 5% (+/- 2.5%) in the last 3 years
• This can be attributed to sound and active monetary policy by the CBK’s monetary policy
committee
Source: IMF
Inflation
14.0%
9.4%
5.7%
6.9% 6.3%
8.5%
9.5% 9.4%
6.6% 6.4% 6.9%
7.8%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2011 2012 2013 2014 2015E Average
Kenya Inflation SSA Inflation
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Headline inflation remains vulnerable to supply side shocks such as food inflation
• Food inflation, which contributes approximately 36.0% to headline inflation, remains a key risk as
this cannot be managed via traditional monetary policy tools
• However, core inflation, which the CBK has actively managed via its monetary policy tools, has
remained in single digits over the last economic cycle
Source: KNBS, BAM Estimates
Food & Core Inflation
18.9%
10.5%
7.5% 8.8%
11.4%
6.3%
9.5%
4.2% 4.3% 4.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2011 2012 2013 2014 2015
Food Inflation Core Inflation
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Local interest rates have compared favorably to East African Peers
• Local 3 month Treasury bills have averaged 10.1% during the last 5 years. This is lower than
Tanzanian and Ugandan 3 month treasury bills over the same period indicating that the Kenyan
government has been able to secure domestic credit on cheaper terms than EAC peers
Source: Bloomberg Information: 3 month Treasury Bills
Interest Rates
10.9% 10.1%
8.8%
10.5%
3.8%
6.1%
15.8%
13.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2015 5 Year Average
Kenya 3 month T bill Tanzania 3 month T bill Rwanda 3 month T bill Uganda 3 month T bill
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The KES has been resilient despite recent pressures, to outperform regional peers
• The KES has averaged 5.1% in annual depreciation to the USD over the past 5 years, with Uganda
and Tanzania averaging 8.2% and 8.1% depreciation over the same period
• Increased diversification of foreign currency inflows helped shore up the KES despite Kenya
being a net importer
Source: Bloomberg; Information: Annual currency depreciation to the US Dollar
Regional Currencies
-12.9%
-5.1%
-22.0%
-8.2%
-24.0%
-8.1% -8.0%
-4.7%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
2015 5 Year Average
Kenya Shilling Uganda Shilling Tanzania Shilling Rwanda Franc
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The Shilling’s depreciation has also been partly due to global US Dollar strength
• As highlighted above, currency depreciation has not been unique to Kenya or East Africa, with
global US Dollar strength affecting even the most prominent global currencies. The Euro, Sterling
Pound and Chinese Yuan all depreciated during 2015 by 10.2%, 5.4% and 4.4% respectively
Source: Bloomberg
Global US Dollar Strength
85
87
89
91
93
95
97
99
101
103
105
Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
EURO Sterling Pound Japanese Yen Chinese Yuan
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Export growth has regularly lagged import growth, leading to a weaker balance of
trade position. This has hampered the overall balance of payments
• Kenya’s overall balance of payments has ranged -3.7% to 3.3% of GDP in recent years, following
robust performance from the capital and financial accounts
• The overall balance of payments has been hampered by poor export growth, which has averaged
6.9% over the last 5 years compared to 4.9% import growth over the same period, thus widening
the balance of trade deficit. The balance of payments crossed into negative territory in periods of
currency support via the use of forex reserves
Source: KNBS, BAM Estimates
Balance of Trade vs. Balance of Payment
-22.6% -22.8% -24.2%
-26.2%
-21.7%
-2.4%
3.0% 0.9%
3.3%
-3.7%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
2011 2012 2013 2014 Q3 2015
Balance of Trade/ GDP Balance of Payments/GDP
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Kenya’s Current Account Deficit has been wider than Sub Saharan peers
• Kenya’s deteriorating balance of payments has resulted in a widening current account deficit,
averaging 8.8% over the last 5 years, with Sub Saharan Africa peers averaging 3.5% over the
same period. This has increased the Kenya Shilling’s vulnerability to external shocks
• Exports have been affected by slowing demand from our main trading partners. Meanwhile,
imports have been growing as a result of increased infrastructure projects in the country
Source: IMF, BAM Estimates
Current Account
-9.1% -8.4%
-8.9%
-10.4%
-7.2%
-8.8%
-0.7%
-1.9% -2.4%
-4.1%
-5.7%
-3.5%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2011 2012 2013 2014 2015E Average
Kenya Current Account/GDP SSA Current Account/GDP
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Fiscal Deficits
Kenya’s fiscal deficits have remained above SSA average and peers over the years
• While GDP growth has outperformed the SSA average over the same period, there is still need for
more fiscal consolidation to rein in the fiscal deficits in the medium term
• The evolution of Kenya’s fiscal deficits underscores the policy directives undertaken to spur
growth in the economy in line with the Vision 2030 Blueprint
• However, this has left the country vulnerable to large interest rate and currency movements
-7.4% -6.5%
-7.9% -7.3%
-8.7%
-7.6%
-2.4% -3.3%
-4.3% -3.9%
-3.3% -3.5%
-11.7%
-9.6%
-6.9%
-3.8% -4.2%
-7.2%
-4.3%
-3.0% -2.6%
-4.5%
-7.0%
-4.3%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2011 2012 2013 2014 2015E Average
Kenya SSA Average Tanzania Uganda
Source: IMF
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Average yields on benchmark bonds have been increasing, creating pressure on the
government’s borrowing costs
• Yields on 5 year and 10 year bonds stood at 13.2% and 13.4% during 2015, their highest levels in
the last 5 years, while 2 year bond yields were also quite high at 12.9%
• The increase in the fiscal deficit has led to increased borrowing pressure for the government
resulting in a corresponding rise in interest rates
Source: NSE, BAM Estimates
Cost Of Funding
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
2 Year Yields 5 Year Yields 10 Year Yields
II. Fiscal Discipline: Consolidating
on Previous Gains
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Revenue vs. Expenditure
Source: Budget Policy Statement 2015 & 2016 * Based on Preliminary Figures **Revised Budget Figures
Government expenditure has grown at a rate of 19% p.a. over the last 4 years
• Government expenditure has more than doubled over the past four years growing from KES 948
billion in FY 2011/12 to KES 1.9 trillion in FY 2015/16
• Expenditure growth has outpaced revenue growth necessitating an increase in government
borrowing. This has been financed both domestically and through foreign debt
28
764 867
974 1,106
1,311
948
1,132
1,301
1,639
1,907
0
500
1000
1500
2000
2500
2011/12 2012/13 2013/14 2014/15* 2015/16**
Total Revenue Total Expenditure
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GDP By Consumption
The proportion of gross fixed capital formation to GDP at 21% is in line with the rate observed in other
developing countries
Government consumption expenditure has remained stable as a percentage of GDP
Gross fixed capital formation has increased over the last three years following greater spending on
infrastructure, real estate and machinery
Source: KNBS Economic Survey 2015
14.1% 14.4%
77.6% 76.0%
21.0% 20.0%
-14.6% -12.7%
1.9% 2.2%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2014 5 Year Average
Government consumption Private consumption Gross fixed capital formation Net Imports Others
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Recurrent vs. Development Expenditure
Recurrent Expenditure has declined from 21% to 15% of GDP over the past 5 years
Fiscal policy has been redirected towards investment led growth resulting in the decline of the
proportion of recurrent expenditure to GDP
Development expenditure as a proportion of GDP has remained relatively stable over the same
period due to this shift in focus
20.8%
17.2% 16.3%
17.7%
14.9% 15.3%
8.7%
6.4% 7.4% 6.8% 6.3%
8.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2009/10 2010/11 2011/12 2012/13 2013/14* 2014/15**
Recurrent Expenditure % of GDP Development Expenditure % of GDP
Source: National Treasury, QEBR Q415
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Development expenditure has continually lagged recurrent expenditure
• The execution gap on development expenditure has persisted with recurrent expenditure outturn
exceeding budget at the expense of development expenditure
• Kenya has failed to meet budgetary targets in recent years, with actual development expenditure
only achieving 66%-80% of targets
• This has served to compromise on GDP growth, as development projects take a back seat to
recurrent expenses
Source: Treasury, BAM Research
Budget Absorption Rates
96% 94% 98%
105%
69% 66%
80% 74%
0%
20%
40%
60%
80%
100%
120%
2011/12 2012/13 2013/14 2014/15
Recurrent Expenditure Development Expenditure
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Government Spending
New budgetary framework, anchored on driving growth has increased allocation on economic affairs
to 26% in 2015
• Increasing expenditure allocation to economic affairs which includes the key economic sectors
such as manufacturing, construction, transport and agriculture is expected to be a driver of
future growth
Source: KNBS Economic Survey 2015
Others* ;This includes transfers of general character, social and environmental protection, health, recreation and housing and community amenities
Expenditure as a % of public expenditure
19.6% 20.6%
13.6%
17.7%
10.6%
18.0% 16.9%
25.6%
10.9%
16.3%
8.2%
22.1%
0%
5%
10%
15%
20%
25%
30%
Public DebtTransactions
Economic Affairs Security Education General PublicService
Others*
4 Year Average 2014/15
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National vs. Country Governments Expenditure
The National government expenditure proportion to GDP has remained fairly constant despite
transfers to county governments.
As more functions are taken on by county governments in future, national government
expenditure will need to reduce in order to curtail fiscal pressure from excess spending
Figures; KES Billions
Source: National Treasury QEBR Q4 2015 ;* Preliminary Results ,** Printed Budget
592 650 796 750
874
219 295
306 319
478 10 193
229
0
200
400
600
800
1000
1200
1400
1600
1800
2010/11 2011/12 2012/13 2013/14* 2014/15**
National Government Recurrent National Government Development Transfers to County Government
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Government Revenue
Source: Budget Policy Statement 2015 & 2016 * Based on Preliminary Figures **Revised Budget Figures
Total revenue has grown by 81% from FY 2011/12 to FY 2015/16
• The 2016 Budgetary Policy Statement indicated a downward revision in expected revenue for FY
2015/2016 by approximately KES 47.3 billion on account of projected shortfalls in tax, which
accounts for over 90% of government revenue
• The contribution of Tax to total revenue decreased by KES 53 billion while that of Grants and
Appropriations in Aid to total revenue went up by KES 5.6 billion
34
774 748 797 776 920 919
1,086 1,031
1,255 1,202 15 70 91
67 55
94 75
103 109
75 21
27
59
28
73 73
600
800
1000
1200
1400
1600
Projected Actual Projected Actual Projected Actual Projected Actual Projected Actual
FY2011/2012 FY2012/2013 FY2013/2014 FY2014/2015* FY2015/2016**
Tax AiA Grants
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Main sources of tax revenue have been income tax and value added tax
• Total revenue has grown by 55% over the last 4 years driven by growth in excise duty (71%), VAT
(60%) and income tax (57%)
• The downward revision in ordinary revenues is on account of projected shortfalls in Income tax
(KES 37.5 billion) largely on account of PAYE and VAT (KES 14.1 billion)
Tax Revenue
Figures: KES Billions
Source: Treasury; Budget Policy Statement 2015 & 2016 * Based on Preliminary Figures **Revised Budget Figures
35
373
450
509
586
58 68 74 85 86 102 116 147
185
233 260
296
74 67 73 89
0
100
200
300
400
500
600
700
FY 12/13 FY 13/14 FY 14/15 * FY 15/16 **
Income tax Import duty(net) Excise duty Value Added Tax Other
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Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments
Kenya has the highest tax to GDP ratio in the EAC
• Kenya’s tax to GDP ratio is expected to continue outpacing its EAC peers, growing from 17% of
GDP in 2010/2011 to 21% of GDP in 2015/2016
• Government remains keen on tax reforms to broaden the tax base, with plans to grow revenue
by 2% of GDP in FY 2015/16.
Tax to GDP Ratio
Source: African Economic Outlook
36
21%
18% 18%
16%
11%
13%
17%
14%
0%
5%
10%
15%
20%
25%
2015/2016(p) 5 Year Average
Kenya Tanzania Uganda Rwanda
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments
37
Evolution of Debt Levels
Source: KNBS
Fiscal expansion program has led to increased debt levels
• Kenya’s stock of domestic and foreign borrowing has grown at an annualized growth rate of 18%
over the last 5 years, in line with the growth in government expenditure while nominal GDP
expanded by 14% year-on-year
• Debt levels have remained sustainable at 50% of GDP, below the 55% comfort level advocated by
the IMF for developing economies
600 686 822 922 1,171 1,491
720 800 971 1,189
1,308 1,541
3,169
3,726
4,261 4,731
5,358
6,088
42% 40%
42% 45%
46% 50%
0%
10%
20%
30%
40%
50%
60%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2010 2011 2012 2013 2014 2015*
Fig
ure
s in
KE
S B
illi
on
s
Foreign Debt Domestic Debt GDP Market Prices Total Debt/GDP
| Unit Trust Funds | Wealth Management | Pensions | Property
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Investments
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38
Foreign vs. Domestic Debt
Source: World Bank
Stock of foreign debt has increased over the years
• Kenya’s stock of foreign debt has increased over the last two year after receipt of Kenya’s maiden
Eurobond in 2014, but still remains sustainable below 25%
• Kenya’s merchandise and services exports cover foreign interest payments 20 times, having
fallen to 10 times in 2014 after the repayment of the syndicated commercial loan in the year
19% 18% 19% 19%
22%
24% 23%
21% 23%
25% 24% 25%
29 28
26
20
10
20
0
5
10
15
20
25
30
35
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013 2014 2015
Foreign Debt/GDP Domestic Debt/GDP Foreign Interest Payments Coverage Ratio
| Unit Trust Funds | Wealth Management | Pensions | Property
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Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments 39
Fiscal Expansion & Debt Accumulation
Robust GDP growth has been supported by fiscal expansion framework
• Fiscal expansion framework adopted by the government has resulted in higher GDP during
expansionary fiscal policy and accumulation of debt to finance the deficits
• Fiscal propelled growth has proven to be unsustainable in the long term and there is therefore
need for anchoring future growth within a fiscal consolidation framework
-7.4% -6.5%
-7.9% -7.3%
-8.7% 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2011 2012 2013 2014 2015
Fiscal Deficits GDP Growth Debt to GDP (R.H.S)
Source: IMF
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments
-1.5%
-2.8%
-6.0% -5.7% -7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
2001-2005 2006-2010 2011-2015 2016-2019**
40
Fiscal Consolidation Average Budget Deficit % of GDP
Source: IMF ; ** 2016 BPS Estimates
The Case for Fiscal Consolidation The Case for Fiscal Stimulus
The initial stimulus was to drive
growth in the face of global and
domestic macro economic shocks
experienced in 2008-2009 and 2011
The government spent more to drive
growth leading to GDP expansion
GDP has grown from KES 3.1 trillion
to KES 6.0 trillion. Fiscal deficit as a
% of GDP should fall to reflect the
expansion in the economy.
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments
41
Fiscal Cycle: Potential Pitfalls Of Expansionary Policy
Soaring Fiscal
Deficits to stimulate growth
Rising GDP Growth, Rising
Inflation
Soaring current account deficits, currency weakness
Rising interest rates & debt levels
& susceptibility
to external shocks
Softening GDP growth,
poor performance
of key sectors
Government increases
expenditure to catalyse
economic growth
focusing on development
projects and creating
more jobs in the
economy
Debt financing pressures
results in reduced
implementation of
development projects
thus spilling over to the
private sector resulting in
economic slow down
Government increases
domestic and foreign
borrowing to support
increased spending.
Thus, cost of government
debt increases
Unemployment rate drops
and wages rise. Import bill
rises due to increased
expenditure by government
on infrastructure projects
and higher disposable
income
We are here
III. Summary & Outlook
42
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments 43
Despite several hurdles along the way, economic growth has been impressive. Fiscal
discipline would enable the government to consolidate on previous gains
• GDP Growth impressive: GDP growth has averaged 5.4% over the last 5 years, while regional peers
have averaged 4.4% over the same period. This has been facilitated by:
A vibrant, well diversified economy
Stable currency, interest rates and inflation
Sound monetary policy & expansionary fiscal policy
• Challenges still remain: Kenya’s economic growth has been curtailed by:
Wide fiscal and current account deficits
High cost of borrowing
Low budget absorption rates
• Fiscal Consolidation is key: We believe fiscal discipline will enable the government to consolidate on
previous GDP growth and set up the economy for even better economic growth going forward
Summary
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments 44
With Global Growth Stuttering, More Consolidation Is Needed While the fiscal stimulus program has proven effective in spurring growth, it has come
at a cost of more susceptibility to external shocks and credit cycles
• Increased Domestic Borrowing: The increased financing of the budget deficits through domestic
borrowing has had the following consequences:
High interest rate environment in the country
Crowding out of the private sector during peaks in the interest rate cycles
Inconsistency between monetary and fiscal policy regimes
• Expensive Foreign Borrowing: Substituting domestic for foreign borrowing has had its own challenges:
More commercial financing as opposed to concessional loans
Weak performance of the Kenya Shilling amplifying foreign liabilities
Emerging and Frontier Markets aversion has been gaining traction as risk builds up
• Fiscal Consolidation is paramount: Fiscal discipline enables us to consolidate on current growth
trajectory, build a platform for more sustainable growth and mitigate against adverse external shocks
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments 45
Outlook
Economic Growth 2016 5.5% to 6.0%
Fiscal & Monetary
Policy
Inflation &
Interest Rates
Currency
Currency: Shilling to exhibit more gradual depreciation in
2016 as global dollar strengthening wanes off and current
account deficit narrows. We expect the Shilling to trade
between 102.00 – 108.00 on average in 2016
Fiscal Policy: Fiscal consolidation efforts by the
government are expected to complement monetary policy in
taming the appreciation of rates in the near term. We expect
more commitment from the government in cutting fiscal
deficits below 7% in the medium term
Monetary Policy: We expect the CBK to have increased
scope for a reduction in CBR during the second half of 2016
after shoring up liquidity and refinancing management
during the first half of 2016
Inflation: Inflation for 2016 is expected to average 6.8%
trending downwards in the year, driven by softer food,
electricity and fuel prices
Interest Rates: Short term interest rates are expected to
trend between 13%-14% on average in 2016, as the CBK
seeks to balance borrowing needs
| Unit Trust Funds | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative
Investments
| Unit Trusts | Wealth Management | Pensions | Property
| Discretionary Management | Offshore Investments | Alternative Investments
46
Fiscal Discipline: The Way Forward
Expansionary fiscal policy, average 7-8% fiscal deficits
Rising inflation, interest rates and widening current account
Rising economic growth, increased susceptibility to external shocks
Adoption of fiscal discipline. Fiscal deficit below 5% on average
Economy more resilient to external shocks. Interest rates, inflation and currency exhibit stability
Robust and sustainable private sector led economic growth, averaging 6.5% - 7.0% in the medium term
Fiscal Consolidation Growth
Fiscal Expansion Growth
THANK YOU
With you every step of the way
47
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