World Bank contradicts Gov’t economic outlook, says growth to slow in 2019

Kenya’s economic growth is expected to marginally ease in 2019 owing largely to jitters in agricultural productivity from the delayed onset of long-rains according to the just released World Bank economic update.

The suggested retraction in growth is contrary to government projections, a move away from the 6.3 percent economic growth estimate announced by President Uhuru Kenyatta during his State of the Nation address on Thursday April 4, 2019.

According to the Bretton Wood’s institution, Kenya’s Gross Domestic Product (GDP) is expected come in at 5.7 percent for the year from a slightly higher estimate of 5.8 percent in 2018.

“Reflecting on the emerging drought challenges, GDP growth is projected to slowdown before recovering to 5.9% and 6% respectively in 2020 and 2021 supported by ongoing investments by government in its development agenda and an improved business sentiment,” notes the report.

Agriculture, which makes up Kenya’s mainstay in propping up the economy, had in 2018 picked up by an estimated 3.7 percent to aid in the rebound of GDP from a downcast 4.9 percent in 2017.

As uncertainty rocks the country’s economic backbone, the World Bank Group expects private sector involvement to anchor growth across the year.

This is as government consumption slows under ongoing fiscal consolidation measures and from the completion of key flagship public investment projects.

Topping investments from the private sector will however be no mere fete as the economic segment continues to wobble under prevailing hardships to include muted credit growth especially to micro, small and medium enterprises (MSMEs).

Private sector credit growth has for instance lagged below 5 percent in the past 3 years, constrained largely by their crowding out from the credit market from intensified domestic borrowing by government coupled with the continued hold of interest earnings under the rate cap regime.

To rally in the private sector, the World Bank backs the repeal of interest capping and the fast tracking of reforms to embolden the sector’s contribution to economic development.

“Our base line for growth in 2019 takes into account the fact that private sector investment is likely to remain subdued and hence our policy message, emphasizing on the need to support private sector investment recovery especially under ongoing fiscal adjustment by government,” World Bank senior economist Peter Chacha said.

In spite of elevated concerns on low credit spread, Kenya’s economy has continued to express resilience characterised by the credit-less recovery of key economic segments.

Credit-less recovery in growth is largely supported by any one of three scenarios which may include; elevated household consumption, the acceleration of non-credit intensive segments of the economy and the access of credit from alternative sources which do not factor into the aggregate reporting on credit.

“In 2017, Kenya faced a severe drought that crippled productivity in agriculture but still managed a near 5% GDP growth. There is a lot about this economy where growth is propelled by non-credit segments. There are pointers to it,” said World Bank lead economist Allan Dennis.

Further to agriculture and credit-flow queries, the report makes note of the probability of the emergence of risks from fiscal slippages characterized mainly by the under-performance of revenue collection by government.

Domestic revenue mobilization by government as a share of GDP has for instance retracted below 16 percent in recent years from a all-time high of between 19-20 percent.

This as the Kenya Revenue Authority (KRA) continues to miss out on set collection target by government constrained by a number of factors which include depressed tax-compliance.

Having missed to top Ksh.1.4 trillion in its revenue collection target during the 2017/18 fiscal year, the agency is bound to once again miss the Ksh.1.69 trillion mark at the end of this year having already fallen short of revenue collection targets in the first quarter.

Externally, uncertainties in global financial markets expressed in the yet to be resolved trade dispute pitting the US and China and the unpredictability of the nature of Britain’s exit from the European Union (EU) continues to overshadow prospects for global growth.

For economies such as Kenya, global volatility and uncertainty is likely to constrain foreign direct investments (FDIs) as global financing conditions tighten.