News 

Sunday, October 25, 2015 

World Bank puts Kenya at 5.4%

NAIROBI, Kenya - The World Bank has revised Kenya’s economic growth projections for 2015 and warned efforts to correct flaws in the economy could further weaken growth.

“Kenya has the potential to become one of the best performing economies in sub-Saharan Africa and also among the middle income countries,” Diarietou Gaye, World Bank Country Director for Kenya said while releasing the Bank’s report on the performance of the Kenyan economy.

The World Bank predicts the economy will grow at 5.4% in 2015, rising slightly above the 2014 growth rate of 5.3% but will grow to 5.7% in 2016. 

However, Kenya’s National Bureau of Statistics (KNBS) figures show the growth in the second quarter of 2015 was the lowest average growth for the past five years.

The Central Bank of Kenya (CBK) says the government’s growth prediction for 2015 is 6.5%, mainly supported by public and private investment and increased consumer confidence. 

The fourth quarter growth projection for 2015 is expected to be at 3%, according to KNBS figures.

The World Bank remains optimistic the Kenyan economy will pull through a tough season, marked by the decline of major currencies and the volatile foreign exchange market internationally.

“Managing the challenges emerging from the current global economic environment will enable the government to deliver on the promise of a more prosperous future for Kenyans,” Gaye said.

The World Bank maintains economic performance remains solid, though the uncertainty facing global currencies is causing volatility in the domestic money and foreign exchange markets.

The Bank warned against “expansionary fiscal path” which it said could put the projected economic growth at risk.

World Bank’s Senior Economist John Randa, who criticized the ‘expansionary fiscal path,’ said the ongoing public spending on mega-infrastructure projects could lead to “macro-economic shocks.”

CBK Governor Dr Patrick Njoroge said earlier this month the local economy was suffering from the mismatch in the fiscal policy front and the monetary policy front.

“There has to be a greater space and the strengthening of the fiscal policy at the National Treasury,” Dr Njoroge told a news conference.

The Kenyan economy is reeling from the huge national budget deficit 8.7% caused by the government’s spending on the Standard Gauge Railway (SGR) project and the expansion of major highways.

The Central Bank believes that while steps are being taken to tighten the monetary policy, by raising the lending rates and keeping inflation under control, the National Treasury has not tightened the fiscal policy. This has resulted into the possibility of the government borrowing locally to meet its demand.

The Bank warned the current fiscal deficit as a share of Gross Domestic Product (GDP) presents a risk to growth unless fiscal consolidation is undertaken.

The Budget deficit of US$5.8 billion, 8.7% of the GDP, resulted from the state spending in infrastructure and the need to keep funds flowing to 47 county governments. 

By Kennedy Abwao, Sunday, October 25th, 2015