Central Bank forecasts 6.2pc growth in 2018

Kenya’s economy is likely to expand by 6.2 percent this year, the central bank’s governor said on Tuesday, offering a rosier outlook than the Finance Ministry which expects growth of 5.8 percent.

The East African economy expanded by 5.7 percent in the first quarter as farming, which accounts for close to a third of output, recovered from a drought in the same period a year earlier. The economy expanded by 4.9 percent in 2017.

Patrick Njoroge, the governor, told a news conference the forecast was based on the economy’s performance in the first quarter, a stronger agriculture sector and a jump in tourists’ forward bookings.

“We have a very favourable outlook for the economy,” he said, adding however there were risks including an international trade war and a cap on commercial lending rates at home.

Njoroge said the economy would grow much faster if the cap, at 4 percentage points above the central bank rate, which stands at 9.0 percent, was repealed.

Henry Rotich, the finance minister, moved to repeal the cap in his June budget to parliament but some influential lawmakers have vowed not to support the repeal. The budget must still be debated and passed by lawmakers before it becomes law.

Njoroge also said the dispute over trade tariffs between the United States and countries like China posed a significant risk to the growth outlook.

“The trade wars have started but they are still in round one… we hope that the war will cease quickly because there won’t be any winners in trade wars, everybody loses,” he said.

The central bank expected the current account deficit to shrink to 5.4 percent of gross domestic product at the end of this year from 5.8 percent in June, Njoroge said.

He attributed the forecast to a strong performance in farm exports like tea and cut flowers, amid falling imports.

The country’s imports shot up last year due to the drought which forced increased amounts of food imports.

This year, good rainfall has driven up production volumes of key export crops including tea.

Cash sent from Kenyans living abroad, known as remittances, was also rising, boosting the outlook for the current account deficit, Njoroge said, attributing the increase to new products by local banks targeting Kenyans in the diaspora.

“These products have actually been very effective,” he said.