Initial work on new rail to raise GDP 6.9pc in 2015
Workers at the standard gauge railway construction station site. Construction of the line is expected to create over 30,000 jobs. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
Construction of the railway between Nairobi and Mombasa is expected to create over 30,000 jobs for locals, with landowners affected by the railway to be paid Sh10 billion in compensation.
The start of construction work on the Standard Gauge Railway (SGR) will stimulate the economy, contributing to gross domestic product (GDP) growth by nearly seven per cent in 2015. This is the assessment of the International Monetary Fund (IMF) which regularly lends Kenya money to support the shilling.
The lender’s mission from Washington, led by assistant director for the African Department Mauro Mecagni, has been in Kenya since the last week of October assessing the country’s readiness to qualify for a precautionary loan facility.
“The SGR’s initial construction work will contribute to higher real GDP growth, projected to rise to 6.9 per cent in 2015 from 5.3 per cent in 2014,” said Mr Mecagni in a statement at the end of the mission.
Construction of the railway between Nairobi and Mombasa is expected to create over 30,000 jobs for locals, with landowners affected by the railway to be paid Sh10 billion in compensation. Apart from land acquisition cash, the State has pledged that at least Sh130 billion, or 40 per cent of the project’s contract price, will be spent directly in the local economy.
Describing the Sh327 billion project as a major step for Kenya and the region, the IMF team said that the project will be instrumental in bringing down the cost of doing business and helping Kenya move closer to its medium-term goals outlined in Vision 2030 plans.
The IMF cautioned that equipment imports tied to SGR, combined with those for oil exploration, will keep the external current account deficit relatively high at around 8.5 per cent of GDP in 2015. However, the deficit will still show a decline compared to the projected deficit of nine per cent for 2014 due to lower international oil prices.
Oil prices have fallen to less than $80 (Sh7,120) a barrel, by more than 20 per cent, since the beginning of June.
On the expected loan, Kenya had asked for precautionary cash to underwrite unforeseen developments that could affect the shilling.
Three years ago the currency risk unravelled when the shilling sank to a historic low of Sh107 to the dollar, leading to a series of interest rate hikes that made credit expensive. Under the new initiative, the IMF would set aside the cash to be used to intervene if the currency goes into wild swings.
Reuters reported the size of the agreed precautionary loan to be at between $700 million to $750 million (Sh63 billion to Sh67.5 billion), with the final approval for the loan by the IMF executive board expected next month.
In the previous programme Kenya drew Sh68bn ($760m) in a three-year period from January 2011 to December 2013.
