The World Bank expects Kenya’s economy to grow by 6% in the year 2020, up from 2019’s estimated growth of 5.9%. This is thanks to accommodative monetary policy, such as repealing of interest rate caps. However, the bank warned that fiscal tightening slows the expected growth of Kenya’s economy, despite a progressive monetary policy.
“In Kenya, growth is expected to remain solid, but soften somewhat as accommodative monetary policy does not fully offset the impact of a fiscal tightening,” read a recent World Bank Report.
Predictions of economic growth cow under the shadow of dipping trends in demand. For instance, slow demand, among other reasons, resulted in 17 companies issuing profit warnings due to massive decline in revenues.
Experts argue that weak household demand might slow economic progress, causing businesses to run on excess capacity.
“If excess capacity and weak household demand point to the large negative output gap, it could tempt an assumption that accommodative monetary policy will make sense,” People’s Daily quotes Jared Osoro from KBA.
Moreover, Kenya’s debt accumulation posits a short and long term risk, eventually threatening economic growth. At KSh 5.96 trillion, a growing national debt will cause policy uncertainty with the possibility of introduction of extortionary taxes. Such taxes would then reduce growth-enhancing spending or delay reforms that would nurture innovation.
“For investors, large projected government debt service cost creates policy uncertainty because they may eventually compel governments to introduce distortionary taxation (including on future investment returns), curtail growth-enhancing spending, or delay reforms that may support innovation and productivity. Such uncertainty lowers incentives to invest in productivity-enhancing technologies,” the report states.
