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Economy

World Bank projects 6pc growth for Kenyan economy

Central Bank of Kenya
Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG 

Kenya’s growth is projected to accelerate slightly in 2020, according to World Bank Group’s economists, partly supported by increased credit flow to businesses amid more favourable weather.

The economy is predicted to expand by six percent this year, multilateral development bank says in the latest Global Economic Prospects report, a 0.1 percent upgrade from its previous forecast in June 2019.

The bank estimates growth at 5.8 percent in 2019, reduced from 6.3 percent the year before on the back of reduced agricultural production due to delayed rainfall.

The bank’s economists, however, see increased public borrowing as a downside risk to its growth projection for Kenya, with expansion forecast to slow to 5.8 percent next year.

“In Kenya, growth is expected to remain solid, but soften somewhat as accommodative monetary policy does not fully offset the impact of a fiscal tightening,” the bank says in the report released late Wednesday.

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The report said moderate inflation — a measure of the cost of living — which averaged 5.2 percent last year helped the Central Bank of Kenya (CBK) adopt an accommodative monetary policy stance to stimulate economic activities.

Such stance characterised by lower short-term interest rates as a result of a central bank cutting its benchmark lending rate to signal commercial banks to follow suit and boost the supply of cash by it making it less expensive.

The CBK last November cut its benchmark lending rate to 8.5 percent from nine percent for the first time since May 2018.

The accommodative monetary policy was, nonetheless, not effective due to legal ceilings on interest rates charged by commercial banks, controls which were scrapped last November after a three-year stint.

A consensus growth outlook based on an analysis of growth forecast from some 14 global banks, consultancies and think tanks by Barcelona-based FocusEconomics has forecast Kenya’s economy to expand by 5.8 percent this year.

“One bright spot (in sub-Saharan Africa) will be Kenya, where balance sheet issues are easing,” John Ashbourne, senior emerging markets economist at UK-based research firm Capital Economics said in a note on December 19.

“Strong import demand (due to capital intensive-projects such as standard gauge railway), poor harvests, and elevated government spending led to wide fiscal and current account deficits in recent years, but we think that these will now narrow as fiscal policy tightens and work on costly infrastructure projects slow.”

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