• The prospect of interest rate cuts could improve the fiscal outlook for governments and businesses, but monetary policy alone cannot solve all pressing global challenges.
• Strategies to revive investment and trade, support full employment and fair income distribution are crucial to driving robust growth and meeting SDGs.
Image: BRIAN OTIENO
UN Trade and Development (UNCTAD) has warned of a possible further growth deceleration in 2024, citing falling investments and subdued global trade dynamics.
This comes amid debt accumulation and repayment pressures, which pushed countries such as Kenya and Ivory coast into the Eurobond market to evade defaulting.
Since early 2024, sovereign bond sales for some developing countries have resumed, buoyed by a thaw in financial markets and on the expectation of interest rate cuts in major developed economies.
In aggregate, bond issuance by developing countries in the first quarter of 2024 soared to $45.5 billion (Sh6.1 trillion), a record high for this period of the year.
Among these, five countries rated investment grade issued for $28.5 billion (Sh3.8 trillion).
Issuances by eight non-investment grade countries amounted to $17 billion (Sh2.3 trillion)
Notably, this latter group includes three sub-Saharan countries – Benin, Côte d'Ivoire and Kenya – a region that had been shut off from bond markets for most of 2022 and 2023.
“Renewed access to market financing is a welcome development, particularly for non-investment grade countries, many of whom are at high risk of or in debt distress,” UNCTAD notes in its latest report.
However, concerns remain regarding the sustainability and breadth of market access in the outlook period. In addition to the seasonality of bond issuance,11 two further aspects warrant attention: distribution of issuance and costs, the UN trade body said.
World Bank has projected Kenya’s economy to grow by five per cent this year, driven mainly by increased investment based on restored access to international capital markets.
This, it says, will spur investor confidence and capital inflows, as well as more credit to the private sector through reduced domestic government borrowing.
Other growth drivers include the recovery in agriculture and tourism as well as deeper regional integration, with the economy expected to further grow by at least 5.2 per cent in 2025-25, World Bank says in its latest Africa’s Pulse report.
IMF last week cut Kenya's GDP growth forecast for 2024 to five per cent from 5.3 per cent, on external shocks.
While the global economic slowdown in 2023 was less severe than originally projected, UN Trade and Development does not rule out a further downshift this year.
Rebeca Grynspan, Secretary-General of UN Trade and Development, ahead of the Spring Meetings of IMF and WB where she will participate, strongly urged concerted multilateral action and a balanced policy mix underlining that global policy coordination remains the key to safeguarding the global economy.
This, amid shifting trade patterns, soaring debt, and mounting cost of climate change all of which disproportionately affect developing countries.
Looking to 2024, market expectations for lower interest rates raise hope for mitigating the pressure on private and public budgets worldwide.
Kenya’s Central Bank this month retained its base lending rate at 13 per cent, with governor Kamau Thugge saying it remains among policy measures to manage inflation.
Kenya’s overall inflation declined further to 5.7 per cent in March 2024 from 6.3 per cent in February, driven by lower food and fuel inflation.
“The Monetary Policy Committee concluded that the current monetary policy stance will ensure that overall inflation continues to decline towards the 5.0 per cent mid-point of the target range, and thus decided to retain the Central Bank Rate (CBR) at 13.00 per cent,” Thugge said in his post MPC briefing.
However, UNCTAD notes that monetary policy alone cannot provide solutions to key global challenges, pointing to the ongoing crises linked to sovereign debt, ever-growing inequalities, and climate change.
It underscores the need for concerted multilateral action, along with a balanced policy mix of fiscal, monetary, demand-side and investment boosting measures to achieve financial sustainability, create jobs, and improve income distribution, it said.
To restore trust in the multilateral system and prevent further fracture, UN Trade and Development Secretary-General Grynspan spotlights two critical areas.
“We call for coordinated multilateral efforts to address the asymmetries of international trade and market concentration,” she said.
“Borrowing countries need more fiscal flexibility to reach the Sustainable Development Goals. This can only be achieved through an inclusive and global reform of the global financial safety net.” Most advanced economies' central banks have aggressively raised interest rates since early 2022 to combat inflation.
However, this approach didn't fully consider supply chain issues from Covid-19 and increased market dominance, leading to higher prices and profits.
In 2023, despite stable employment, inflation decreased, indicating that supply-related issues, not just demand, contributed to earlier inflation.
The report also found no evidence of a feared cycle where rising wages drive up prices, with real wages still below pre-pandemic levels and lagging behind productivity growth.
Meanwhile, rising protectionism, disrupted maritime routes due to geopolitical tensions and climate change continue to threaten global trade.
In 2023, the global economy grew by 2.7 per cent, but international trade in goods decreased by one per cent.
“Although there has been some recovery in 2024, it's unlikely that merchandise trade will be a significant driver of growth this year,” Grynspan said.