The National Treasury has lowered Kenya’s growth forecast owing to the impact of tighter monetary policy and the El Nino rains which are expected to disrupt the country’s economic activities.
Treasury Cabinet secretary Henry Rotich said yesterday the economy will expand by between 5.8 and six per cent against the 6.5 to seven per cent that the government had initially predicted in the current budget—saying the downward revision reflects the economic performance of the first half of the year.
This is the second time the government has cut its own economic growth projection this year. Monetary policy In April, the exchequer trimmed the forecast from 6.5 per cent down to 5.3 per cent.
“There was slow performance of revenue collection and borrowing from the domestic market during the first quarter of FY 2015/16 and, following the revised growth targets, we shall soon embark on aligning our revenue and expenditure forecasts for the full year and the medium term to reflect the new growth prospects,” said Rotich during the opening of the public hearing for the FY 2016/17 and medium term budget.
The announcement comes a day after a meeting by Central Bank to review the country’s monetary policy, which saw the regulator retain its benchmark lending rate at 11.5 per cent, even as banks withdrew notices of higher interest rates issued to customers.
CBK has undertaken several measures in recent months to shore up the shilling, which had fallen to a low of 106 against the dollar in October—including pumping dollars into the market. The government has also reduced its borrowing from the domestic market.
Last month, the World Bank (WB) raised similar concerns and further cited the volatile shilling —now beginning to strengthen against the US dollar—and sluggish exports as some of the key indicators showing the country’s growth potential would not be as strong as earlier anticipated.
The International Monetary Fund (IMF) had also in September cut its predictions for the country’s growth but said it was not expecting ‘a major revision.’
Rotich said other than the impact of El Nino and the tighter monetary policy, the country was also still feeling the effects of the global economic crisis and travel advisories which affected tourism sector but emphasised that the government will initiate targeted interventions to reverse the situation.
“The government is committed to reducing the cost of doing business and improving the competitiveness of enterprises in Kenya. Also, the desired growth we expect will have to be largely produced by the private sector,” he said.
