Kenya’s GDP growth is projected to decelerate to 5.5%, a 0.5 percentage point mark down from the 2016 forecast, according to the World Bank’s Kenya Economic Update (KEU) released in Nairobi today.
“Consistent with its robust performance in recent years, once again economic growth in Kenya was solid in 2016, coming in at an estimated 5.9%—a five-year high. This has been supported by a stable macroeconomic environment, low oil prices, earlier favorable harvest, rebound in tourism, strong remittance inflows, and an ambitious public investment drive,” said Diarietou Gaye, World Bank Country Director for Kenya.
“Nonetheless, Kenya is currently facing headwinds that are likely to dampen GDP growth in 2017.” She added.
The ongoing drought which has led to crop failure, dying herds of livestock, and increased food insecurity. Further, with hydropower being the cheapest source of energy in Kenya, poor rains increase energy costs, their effects spilling over to other sectors. The rise of in food and energy prices drove inflation to a five-year high of 10.3% in March.
Slow Down in Credit Growth
Kenya faces a marked slowdown in credit growth to the private sector. At 4.3%, this remains well below the ten-year average of 19% and is weighing on private investment and household consumption.
“Kenya being a net oil importer, the rise in global oil prices compared to the lows of 2016 has a dampening effect on economic activity. However, in the medium term, economic growth is projected to rebound to 5.8% in 2018 and 6.1% in 2019, consistent with Kenya’s underlying growth potential.” World Bank Noted.
The report also recommends a number of structural reforms that could accelerate growth potential. Credit access can be supported by reducing public sector borrowing, and the transactions cost for accessing credit through better credit reporting, the creation of a central electronic collateral registry, and a framework to promote property as collateral with the automation of land registries and the implementation of the National Payments System Act.
Agricultural productivity can also be improved by increasing the competitiveness of agricultural input and output markets.
(World Bank)
