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October 19, 2018

World Bank revises Kenya’s growth rate

World Bank senior economist for Kenya Allen Dennis. /COURTESY
World Bank senior economist for Kenya Allen Dennis. /COURTESY

The World Bank has revised Kenya’s 2018 economic growth from the 5.5 per cent figure it issued in April to 5.7 per cent.

It attributed the change to improved agricultural yields on account of good rains, better business environment and easing of political uncertainty.

“Real GDP growth is projected to reach 5.7 per cent in 2018, an upward revision of 0.2 percentage points from April,” the Kenya Economic Update report stated.

Steady private sector growth marked with increased imports of raw materials and positive investor sentiment had seen the Purchasing Managers’ Index (PMI) remain in expansionary territory of above 50 points. The growth is projected to remain robust over the medium term with GDP growth projected at 5.8 per cent in 2019 and 6.0 per cent in 2020.

The growth would have been much higher were it not for the current slack in the economy.

The medium term output gap is expected to narrow due to recovery in agriculture and growth in demand. External balance position is expected to remain favourable, thereby supporting macroeconomic stability.

“This forecast remains largely consistent with those in the April 2018 Economic Update, with a slight downward revision of 0.1 percentage points for 2019 and 2020,” World Bank said.

It however warned that subdued growth in private sector credit, a recurrence of adverse drought shocks, and fiscal slippages leading to macroeconomic instability could dampen growth prospects.

It advised Kenya to review interest rate capping law, saying it has tightened liquidity flow to small businesses that drive the economy.

Kenya capped commercial lending rates at four per cent above the Central Bank Rate (CBR) in 2016. Banks are currently lending at not more than 13 per cent.

On the external front, the Washington based lender said that an unanticipated spike in oil prices, uncertainty and rising trade tensions, and unanticipated tightening of global financial market may result in reversal of capital flows from emerging and frontier markets, including Kenya.

 

 

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