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December 18, 2017

World Bank cuts Kenya's 2017 economic growth estimate to 4.9%

Workers prepare men's underwear at the Hela intimates export processing zone limited factory in Athi River, July 27, 2017. /REUTERS
Workers prepare men's underwear at the Hela intimates export processing zone limited factory in Athi River, July 27, 2017. /REUTERS

The World Bank has cut its 2017 growth estimate for Kenya’s economy to 4.9 per cent, which would be the slowest annual expansion in five years.

It said on Thursday that this was due to drought, sluggish credit growth and a prolonged election season.

 The lender had already cut its initial forecast by half a percentage point in April, to 5.5 per cent, citing the severe drought in the first half and the drop in private sector growth.

The Kenyan economy has since been buffeted by political risks after the Supreme Court nullified an August 8 election and ordered a re-run that was boycotted by NASA.

“Private sector activity weakened over the first three quarters of 2017 on account of the election induced wait-and-see attitude,” the World Bank said in its report on the economy.

The drought drove up inflation and cut consumer demand. The main Purchasing Managers’ index for manufacturing and services plunged to a new low in October due to the political uncertainty.

President Uhuru Kenyatta was sworn-in for a second five-year term but main Opposition leader Raila Odinga has said he will hold a parallel “swearing-in” ceremony next week.

Growth is expected to rebound to 5.5 per cent in 2018 and 5.9 per cent in 2019, the World Bank said, provided the government implements policy remedies like the removal of a cap on commercial lending rates.

More on this: Kenya's economic growth to rebound in 2018, says Treasury CS Rotich

Private sector credit growth slipped to 1.6 per cent in the year to August, its lowest level in over a decade.

“Removing the interest rate cap can help jump-start domestic credit to the private sector,” the bank said in the report.

The government also needed to boost revenue collection in order to cut its budget deficit. “Safeguarding macroeconomic stability - a foundation for robust growth - will require fiscal consolidation,” the World Bank said.

It said Kenya, whose budget deficit climbed to nine per cent in the year to the end of June, can cut recurrent expenditure to reduce pressure on public finances.

The East African nation issued its debut Eurobonds in 2014 and has asked banks for proposals for more dollar bonds to be issued in the first quarter of next year.

Economists say although Kenya’s recent annual growth rates of five to six per cent are respectable, it needs to increase them to the upper single digits on a sustained basis to have a meaningful impact on job creation and poverty reduction.

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