World Bank downgrades Kenya growth outlook

East Africa’s biggest economy may grow 4.9% this year, the slowest pace since 2011

The World Bank lowered its economic growth forecasts for Kenya as delays in spending cuts, weak credit extension and political uncertainty curb expansion prospects.

East Africa’s biggest economy may grow 4.9 per cent this year, the slowest pace since 2011, the Washington-based lender said in a report released Thursday. That compares with an April forecast of 5.5 per cent, slower than last year’s gross domestic product expansion of 5.8 per cent.

A government-imposed cap on commercial lending rates, a drought and two disputed elections have weighed on growth in the world’s largest blacktea exporter. The Treasury had to increase its budget-deficit forecast for the year through June and is looking to return to international debt markets for a possible $2 billion Eurobond sale to try to plug the fiscal gap.

“There is a need to consolidate the fiscal stance in order not to jeopardise Kenya’s hardearned macroeconomic stability,” the World Bank said. Kenya must also “jump-start the recovery of credit growth to the private sector” and should “mitigate weather-related risks by climate-proofing agriculture” to support growth, it said.

The bank reduced the 2018 growth forecast to 5.5 per cent from 5.8 per cent in April, and cut the estimate for 2019 to 5.9 per cent from 6.1 per cent, it said.

‘Downside risks’

Despite the downgraded forecasts, the World Bank’s forecasts may still be too bullish given the series of obstacles the economy faces including the rate caps and new accounting rules for banks, said Jared Osoro, director of research at the Kenya Bankers Association.

“There are a number of downside risks that have been identified, which if taken into consideration will put into question the bullish outlook,” he said.

Public debt has burgeoned to about 57 per cent of GDP, from about 45 per cent eight years earlier.