According to the Institute of Chartered Accountants in England and Wales (ICAEW) latest report, Kenya’s GDP is expected to reach 5.7% in 2018 up from 4.9% last year despite an increase in the country’s debt.
In its Economic Insight: Africa Q2 2018, the accountancy and finance body says Kenya’s agricultural, industrial and services sectors are all expected to record a stronger growth this year relative to 2017, thanks to more favourable weather conditions for the agricultural sector, stronger public investment, and an improvement in business sentiment. Its projects real GDP to hit 5.7% this year before averaging just under 6% per annum over the medium term.
The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the economic performance of key African countries inclusive of Kenya.
Despite the country’s positive outlook, one major concern is that of debt. According to the report, the pace of public debt accumulation and lack of a clear communication strategy regarding the government’s plan to address deficits, have raised concerns about the sustainability of Kenya’s public finances.
Total public debt amounted to around KSh4.6trn by the end of last year – which translates to $44.bn, or nearly 60% of GDP. The amount increased by 19% in a single year and has more than doubled (in local currency terms) since December 2013.
Public debt has increasingly taken the form of commercial loans, even as the government issued the country’s second Eurobond earlier this year. The affordability of external loans will be determined by the yield demanded by investors, which in turn will be determined by perceptions of whether Kenya is able to keep its fiscal house in order.
The report also notes that while investors allowed for the distracting effect of the elections, the government must improve on fiscal policy formulation and communication now that the environment is more conducive.
One clear way to do this would be through deeper engagement with the International Monetary Fund (IMF). Despite a few drawbacks, the government has expressed commitment in its engagements with the global financial body. Once the discussions are finalised, it is expected that the new IMF programme will commence and most likely be accompanied by greater austerity. Similarly, a nod from the Fund will also have a favourable impact on government borrowing costs.
