Kenya’s economic activity softened in 2019 to 5.8 percent from 6.3 percent in 2018 according to the latest World Bank Kenya economic update released on Thursday.
The moderation in growth is attributed to a slowdown in agricultural output and weak private sector investment.
According to the report, the medium-term growth outlook remains positive with a projected growth of 5.9 percent with the report noting that Kenya continues to experience steady economic growth, with real GDP expanding on average by 5.6 percent over the last five years.
The report notes that Kenya’s overall macroeconomic environment is expected to remain stable with low inflation and a manageable current account deficit, which should be supportive of the inclusive growth agenda of the government.
Headline inflation is within the government target range of 52.5 percent, while current account deficit has narrowed significantly due to lower imports, diaspora remittance inflows and improved tourism revenues.
Nonetheless, the report noted that interest rate caps have constrained the operating environment for the banking sector and reduced flexibility for monetary policy to support growth, if needed.
“The repeal of interest rate caps (if approved) is a welcome development that should eliminate what has been a powerful disincentive for banks to lend to SMEs and restore the potency of monetary policy,” added the report.
The report called for stronger adjustment measures by the government to place fiscal accounts back on a prudent trajectory.
The world Bank urged Kenya to increase revenue, make revenue projections more realistic, and strengthen expenditure controls and cash management.
“In addition, measures to adjust the government’s borrowing plans are essential to rebalance the public debt portfolio towards lower cost and longer-maturity debt, hence reducing its vulnerability to market instability as well as creating fiscal space,” noted the report.
“The expansionary fiscal stance has resulted in the crowding out of private sector investment, an unanticipated rise in public debt, and a continuation of slower private sector credit growth,” Felipe Jaramillo, World Bank Country Director for Kenya told journalists in Nairobi.
The report recommends further structural reforms to lift productivity durably.
“Structural reforms could include continued effort to ease barriers for SMEs growth, improving quality of education and skills development at all levels, empowering women, supporting R&D, technology adoption and digitalization” said Peter W. Chacha, World Bank Senior Economist.
JK/as/APA