Failed long rains will cut growth in Kenya’s national economic output by up to a percentage point, Central Bank of Kenya (CBK) governor has warned, hitting hard tax collections and slowing growth in new jobs.
Dr Patrick Njoroge says the impact of persistent dry weather conditions on farming will slow down projected growth in 2019 to 5.3 percent from earlier forecast of 6.3 percent.
That will mark the second slowest expansion in economic activities since the current administration took power in 2013, only slower than in 2017.
“The significant impact will be on growth which will be a loss on growth…one percentage point,” Dr Njoroge said during an interview with Bloomberg Tuesday evening.
“If indeed we have a very severe drought, it (growth) may come down to … about 5.3 percent or something like that.”
A weaker growth in the economy hurts corporate earnings, resulting in reduced tax collections and creation of new decent jobs for the rising unemployed graduate youth.
In arriving at the new outlook, Dr Njoroge drew on 2017 experience when severe drought from last quarter of 2016 through second half of 2017 largely contributed to a slowdown in gross domestic product (GDP) to 4.9 percent from 5.9 percent a year earlier.
This was after agricultural output slowed to 1.6 percent in 2017 from 4.7 percent a year earlier and 5.3 percent in 2015.
Agriculture accounts for close to a third of Kenya’s annual economic output, supporting more than three-quarters of Kenyan exports which include tea, horticulture and coffee.
The weatherman Tuesday warned that the peak March-April-May rainfall season will be far below normal levels, leading to a shortage in food and animal feeds production, and raising electricity bills.
Dr Njoroge, however, reassured that the monetary and fiscal policy authorities will be able to contain resultant pressure on inflation and current account deficit – the gap between payments abroad and inflows.
“In some sense, we believe we can contain inflation impact if that’s what will happen. There will be impact also on the current account, but we think we can manage that as well,” he said.
Subsidies and waiver of import duties on basic food items such as maize, milk powder and sugar helped Kenya to contain inflation which had overshot the targeted 2.5 percent - 7.5 percent range between May 2017 and January 2018.