Global firms trim Kenya's growth

National Treasury CS Henry Rotich
National Treasury CS Henry Rotich

THE country's growth outlook for 2016 has been marginally downgraded to 5.8 per cent from last month's six per cent, according to a consensus report of forecasts by 12 leading global banks, consultancies and think-tanks.

In cutting growth prospects, the monthly analysis report by Barcelona-based FocusEconomics cited concerns around budget funding gaps due to dwindling tax collections and current account deficit because of stagnant exports.

“Kenya’s persistent twin deficits expose the country to external risks,” the released last week states.

This year's growth is nonetheless expected to be higher that estimated 5.5 per cent in 2015.

“GDP growth is expected to receive a boost this year from ongoing infrastructure development, especially the Standard Gauge Railway project, still-low oil prices, an expanding services sector and regional integration,” FocusEconomics said in the report. “Analysts project GDP growth of 5.8 per cent for 2016, which is down 0.2 percentage points from last month’s forecast, and see growth picking up to 6.1 per cent in 2017.”

The analysts see the planned reduction in budget deficit in the next financial year from July as “a step in the right direction to improve fiscal sustainability and reduce reliance on external financing”.

Treasury CS Henry Rotich has proposed to slash fiscal deficit to Sh555.4 billion – an equivalent of 7.7 per cent of the national wealth – down from Sh590.7 billion estimate in the present year, or about 9.2 per cent of GDP.

Next year's expenditure is projected in the Budget Policy Statement to the National Assembly this month to grow by 7.89 per cent to Sh2.05 trillion, from the revised estimate of Sh1.90 trillion for the present year through June.

Barclays Capital of the UK and Fitch Ratings-owned BMI Research have projected the highest growth for Kenya at 6.1 per cent each, while JPMorgan of the US and Oxford Economics expects the economy to expand by 5.4 per cent each – the lowest among the 12 forecasts.

Analysts at Britam Asset Managers last week urged the Treasury and the Central Bank to stimulate slowing growth in the private sector by implementing policies that boost cash supply.

“We need some (fiscal) consolidation now because the debt to GDP ratio is approaching the maximum limit ( 55 per cent for East African Community members) and instead we should see some expansionary monetary policy to spur growth in the private sector,” senior portfolio manager Elizabeth Irungu said in Nairobi when the firm forecast a growth of between 5.5 and six per cent for 2016.

Expansionary monetary policy is a tool used by the Central Bank to increase money supply by keeping interest low, which allows companies and individuals to borrow to boost economic activities.