Kenya’s real gross domestic product is projected to grow by 5.7 percent in 2019, a slight decrease from the estimated 5.8 percent growth experienced in 2018, according to the new World Bank Kenya Economic Update released on Tuesday.
While the medium-term growth outlook is stable, the report notes that recent threats of drought and continued subdued private sector investment could drag down growth in the near-term.
The growth forecast for 2020 stands at 5.9 percent.
Growth in 2018 was driven by favorable harvests, a resilient services sector, positive investor confidence and a stable macroeconomic environment.
According to the report, the demand side shows significant slack with growth driven primarily by private consumption while private sector investment remains subdued.
So far in 2019, a strong pick-up in economic activity was underway for Q1 of 2019 as reflected by real growth in consumer spending and stronger investor sentiment.
According to the report, a delayed start to the long rain season (March – May 2019) could affect the planting season-resulting in poor harvests.
“In addition, the below average short rains (October – December 2018) and the ensuing food shortages across several counties in the northern part of the country that has prompted emergency interventions, could impose unanticipated fiscal pressure constraining development spending,” added the report.
These developments have slowed the growth forecast for 2019, noted the report.
“Delays in the long rain season and a growing need for emergency interventions to deal with food shortages is a reminder of the outstanding challenges in managing agricultural risks in Kenya,” Felipe Jaramillo, World Bank Kenya Country Director said in Nairobi.
“Policy measures would be required to transform the agriculture sector through increasing productivity and enhancing resilience to agricultural risks to boost smallholder farmers’ income by improving access to competitive markets.”
The 19thKenya Economic Update (KEU), “Unbundling the Slack in Private Investment”, attributes the slack on the demand side of the economy to two factors namely, insufficient credit growth to the private sector (which stands at 3.4 percent in February 2019), and inherent room for improvement in fiscal management.
On private sector credit, the report recommends fast-tracking solutions to factors that led to the imposition of the interest rate cap and building consensus for its eventual reform.
JK/as/APA