Kenya’s economy to grow 5.2pc this year, says World Bank

Signage of the World Bank.  

Photo credit: File photo | pool

The World Bank has projected Kenya’s economy to grow at a faster rate of 5.2 percent this year, boosted by increased private sector investment as the government reduces its borrowing from the domestic credit market.

This is a faster growth than the 5.0 percent it estimated earlier.

According to the latest Global Economic Prospects, a World Bank Group flagship report, growth in non-resource-rich countries such as Kenya is projected to strengthen to 5.4 percent in 2024 and 5.7 percent in 2025.

“Increasing investment is expected to drive growth in Kenya and Uganda, partly owing to improved business confidence,” says the report.

“Uganda will also benefit from infrastructure investment ahead of new oil production in 2025, and investment in Kenya should be boosted by increased credit to the private sector as the government reduces domestic borrowing.”

Net domestic borrowing by the Kenyan government in the fiscal year starting July 2024 is expected to reduce to Sh377.7 billion, or 2.1 percent of the gross domestic product (GDP), making space for increased borrowing by the private sector.

In the current fiscal year ending in June, net borrowing is projected at Sh451.7 billion, a result of tight global financial markets that have made it difficult for most frontier markets to contract external loans such as dollar-denominated Eurobonds.

In the third quarter of 2023, real GDP, the size of the economy adjusted for inflation, grew by 5.9 percent from 4.3 percent in a similar period in 2022, boosted by a resurgence in agriculture which has been contracting due to drought, data from the national statistician shows.

In Sub-Saharan Africa, the report forecasts that seven countries will grow at a faster rate than Kenya.

The tiny West African country of Niger will grow the fastest at 12.8 percent, followed by Senegal at 8.8 percent.

Rwanda, a member of the East African Community (EAC) like Kenya, is projected to grow at 7.5 percent, Ethiopia 6.4 percent, and Guinea 5.8 percent.

Guinea Bisau and Liberia will grow at 5.6 percent and 5.4 percent respectively. Kenya’s economic growth rate in 2023 is yet to be published but is expected to register an improved performance compared to the previous year.

The World Bank meanwhile warned on Tuesday that global growth in 2024 is set to slow for a third year in a row, prolonging poverty and debilitating debt levels in many developing countries, Reuters reported.

Hamstrung by the Covid-19 pandemic, then the war in Ukraine and ensuing spikes in inflation and interest rates around the world, the first half of the 2020s now looks like it will be the worst half-decade performance in 30 years, it added.

Global GDP is likely to grow 2.4 percent this year. That compares to 2.6 percent in 2023, 3.0 percent in 2022 and 6.2 percent in 2021 when there was a rebound as the pandemic ended.

That would make growth weaker in the 2020-2024 period than during the years surrounding the 2008-2009 global financial crisis, the late 1990s Asian financial crisis and downturns in the early 2000s, World Bank Deputy Chief Economist Ayhan Kose told reporters.

Excluding the pandemic contraction of 2020, growth this year is set to be the weakest since the global financial crisis of 2009, the development lender said.

It forecasts 2025 global growth slightly higher at 2.7 percent, but this was marked down from a June forecast of 3.0 percent due to anticipated slowdowns among advanced economies.

The World Bank’s goal of ending extreme poverty by 2030 now looks largely out of reach, with economic activity held back by geopolitical conflicts.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” World Bank Group Chief Economist Indermit Gill said in a statement.

“Near-term growth will remain weak, leaving many developing countries — especially the poorest — stuck in a trap, with paralyzing levels of debt and tenuous access to food for nearly one out of every three people,” Gill added.

This year’s lackluster outlook comes after 2023 global growth came in an estimated 0.5 percentage point higher than forecast in June as the US economy outperformed due to strong consumer spending.

The US economy grew 2.5 percent in 2023, 1.4 percentage points higher than its June estimate, the World Bank said. It forecast growth this year to slow to 1.6 percent as restrictive monetary policy restrains activity amid diminished savings but said this was twice the June estimate.

The eurozone’s picture is considerably bleaker, with growth this year forecast at 0.7 percent after high energy prices resulted in just 0.4 percent growth in 2023. Tighter credit conditions prompted a 0.6 percentage point cut to the region’s 2024 outlook from the bank’s June forecast.

Additional reporting by Reuters

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