The World Bank has once again lowered Kenya’s economic growth forecast for this year by half a percentage point on Wednesday to 5.5 per cent, citing drought, sluggish private sector credit growth and rising prices of oil.
Growth is estimated to have expanded by 5.9 per cent last year, the highest annual expansion in half a decade, and similar growth was expected this year.
But the outlook has been hit by drought, which has left 2.7 million people in need of food aid, a drop in the private sector credit growth and fears over the August General election that has seen investors hold back.
The World Bank said growth would increase after this year on the back of improved weather, a rebound in tourism and the resolution of challenges curbing credit growth.
“GDP growth is expected to accelerate to 5.8 per cent and 6.1 per cent in 2018 and 2019 respectively,” the Bank said in its bi-annual update of Kenya’s economy.
“While Kenya’s growth has been robust in the recent years, it falls short of the levels envisaged in the Medium Term Plan II and what is required to transform Kenya into an upper middle economy by 2030.”
The main risks facing the economy are the weather and any slowdown in economies of major trading partners, the bank said.
The poor weather has hurt agriculture, which accounts for nearly a third of Kenya’s GDP or wealth, and made food expensive, pushing inflation to a 57-month high.
The cap on commercial lending rates, which was imposed last September, has been partly blamed for the slowdown in credit growth.
The growth of private sector credit slowed down to 4.3 per cent last December, from 20.6 per cent a year earlier, stoking concerns about the potential impact on growth.
The central bank puts the ideal credit growth of 12 to 15 per cent.