World Bank cuts Kenya growth forecast to 4.9%, sees rebound in 2018

By Kevin Mwanza | Business Daily, Kenya December 7, 2017

The World Bank expects the Kenyan economy to rebound in 2018 as headwinds such as drought, slowing credit access and politics — that hurt growth this year — subside.

The bank said on Thursday that it had cut back it’s forecast of the country’s growth this year to 4.9 per cent from an earlier estimate of 5.5 per cent.

It expects the east Africa’s largest economy to rebound to a growth of 5.5 per cent next year before accelerating to 5.9 per cent in 2019.

“We believe Kenya’s economy can rebound and strengthen through specific measures that safeguard macroeconomic stability, enable the recovery of private sector credit growth, and mitigate the impact of future adverse weather conditions on the agri sector,” said Diarietou Gaye, World Bank Country Director for Kenya.

The economy has witnessed shocks this year that forced the government and international monetary fund to scale down their growth projection.

A severe drought that started in the last quarter of 2016 and hurt agricultural production saw the World Bank scale down its forecast in April this year by half a percentage point to 5.5 per cent.

Political Season

A slowdown in credit growth coupled by a a prolonged politicking season that saw the country go to its first ever presidential election rerun at the end of October, hurt the country’s key sectors — agriculture, manufacturing and trade.

Some sectors however did well, including the services sector such as wholesale and retail, tourism and small businesses.

A rate-capping law that was introduced in the fourth quarter of last year contract contributed to the slowing of credit to businesses, which also hurt economic growth.

The World Bank recommended that the credit extended to small and medium-sized enterprises be improved, through part removal of the the interest rate caps.

Fiscal Deficit

“Lowering credit cost and widening credit access sustainably calls for a reduction in the benchmark risk-free government T-bill and bond rates,” said Mahnaz Safavian, lead financial sector specialist at the World Bank.

The bank also called for the narrowing of the country’s fiscal deficit throughout consolidation over the medium term.

Related stories

AsokoNews Brief

Sign up for the Asoko newsletter, highlighting Africa's top business and investment developments each week