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Public investments top economic growth driver

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Several road and energy projects are under way in various parts of the country. FILE PHOTO | NMG

Heavy public investments and consumption have elevated the government to become the key driver of Kenya’s economic growth in the past four years, a newly released World Bank report says.

The report, released on Tuesday, says that in the past four years the public sector’s contribution to growth of the gross domestic product (GDP) more than doubled as that of the private sector diminished.

The survey found that the public sector contributed 2.5 percentage points of GDP growth compared to 1.1 percentage points four years ago.

The private sector’s contribution to the GDP growth had, on the other hand, declined in the four years to 2017 to stand at negative 0.7 percentage points compared to 1.3 percentage points in the four years leading to 2013.

The rise in the public sector’s contribution to the GDP is the result of an expansionary fiscal stance that has raised both State consumption and investment.

But that has also significantly raised the fiscal deficit over the years.

“In the four years to 2017, the contribution of government consumption to GDP growth increased by some 0.4 percentage points (0.8 to 1.2 percentage points of GDP),” says the report.

The increased spending has been to support the roll-out of devolution, new institutions created under the 2010 Constitution, respond to wage agitations, rising debt service obligations as well as pension liabilities.

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The spending on debt has also been driven by the roll-out of mega infrastructure projects, including the standard gauge railway that has cost more than Sh300 billion.

Several road and energy projects are also under way in various parts of the country.

The private sector, on the other hand, has lagged behind despite previously being regarded as the main driver of economic activity.

“The sectors that have contributed to the weakness in private sector growth are agriculture, manufacturing, and trading activities whereas, private investment is likely to have been expanding more rapidly in the real estate and transportation sectors,” says the report.

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Among the reasons for the limited growth in the sector has been the crowding out from the credit market by high yields on government securities and most recently the restrictions on the movement in interest rates.

High food prices due persistent drought and limited household access to unsecured credit have also served to limit consumption in the private sector, the report says.