Kenya’s economic growth will reach 5.5 percent in 2018 and rise further to 5.9 percent in 2019, the World Bank announced on Thursday in Nairobi.
World Bank Country Director for Kenya Diarietou Gaye said the country could even perform better if it addresses some of the challenges currently slowing growth.
“One of the key issues that Kenya needs to address is the high wage bill of the public service. Kenya also needs to improve efficiency in public investments so that they people can get full value of such projects,” said Gaye during the launch of the 16th Edition of the Kenya Economic Update.
The East African nation’s Gross Domestic Product (GDP) growth is estimated to drop to 4.9 percent in 2017, a 0.6 percentage point dip from the earlier forecast of 5.5 percent growth.
The World Bank largely attributed Kenya’s slowdown in economic momentum to drought that hindered national agricultural output and the generation of hydropower together increased inflation and reduced household consumption.
“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 agriculture sector,” she added.
Gaye said Kenya will also need to improve its revenue collection and review the capping of the interest rates which he said has denied credit to the private sector.
“The private sector is being starved of credit with more lending going to the public sector. Ideally for me, I would want to see an economy which is more driven by the private sector rather than by the activities of the public sector,” said Gaye.
For the economy to rebound robustly, the lender said it’s crucial for credit to be given to small and medium size businesses to help them recover.
“While the removal of the interest rate cap would be a step toward this, it will not be enough on its own,” the Bank said.
Dennis said fiscal consolidation could be supported through policies to improve the efficiency of public investment, incentivize the private sector to participate in capital projects to reduce the burden on the public sector, and enhance domestic revenue mobilization and streamline recurrent expenditures,
Hardest hit by low lending to the private sector has been the manufacturing sector, which threatens to slow down Kenya’s 10-year industrialization blueprint, the ‘Kenya’s Industrial Transformation Programme (2015-2025)’, to create 435,000 additional jobs and 2 billion-3 billion U.S. dollars to Kenya’s gross domestic product.
“The last four years have been about laying the foundation for creating a competitive manufacturing base both on infrastructure and on the cost front as well as on improving business environment. The time is now to put manufacturing at the centre stage of Kenya’s economic future,” said Kenya’s Minister for Industry, Trade and Cooperatives Adan Mohamed.
The East African nation cut by half electricity tariffs for manufacturers who work for 24 hours as part of its recovery plan.