Kenya's economic rebound to slow to 5.5pc on high inflation, weak agriculture output
The World Bank has given Kenya a positive growth prospects in the medium term despite soaring food prices and prolonged drought which will slow rebound to 5.5pc this year.
In its 26th edition of the Kenya Economic Update, World Bank projects the economy to grow by an average 5.2pc in the next two years.
The lender forecasts the economy to grow 5pc next year and 5.2pc in 2024.
This year's projection is however lower than 7.5pc rebound recorded in 2021 and 6pc in first half of this year.
The prolonged drought witnessed this year coupled with global commodity shocks and tighter global financial conditions, has seen prices of key commodities rise sharply as inflation hit 9.6pc in October 2022 which was the highest since December 2017.
Inflation rate has however eased to 9.5pc in November on account of government subsidies on fuel, electricity, and maize.
“High frequency monitoring of households shows a rise in food insecurity, most severely in rural areas, and over half of households reduced their food consumption in June 2022,” said World Bank in the report.
According to the bank, the 6pc year-on-year growth recorded in first half of the year was driven by broad-based increases in services and industry, pickup in private sector credit, lower COVID-19 infections, and a recovery in tourism.
“On the demand side, the rebound in H1-2022 was driven by resilient consumption growth, underpinned by buoyant international remittances, increase in minimum monthly wage, and large fiscal subsidies to cushion from the regional drought and global commodities market shocks,” the bank stated.
The World Bank estimates that the drought witnessed this year wiped out 0.3pc of GDP in the first half of the year.
“Boosting food resilience through community interventions in arid and semi-arid lands while supporting farmer groups to link into sustainable value chains will help to better feed Kenya during periods of drought,” said Keith Hansen, World Bank Country Director for Kenya.
Nonetheless the World Bank says robust growth of credit to the private sector, continued low COVID-19 infection rates, a near term recovery in agricultural production, and high commodity prices favorable to Kenyan exports will help catalyze private investment to support economic growth over the medium term.
“Private sector led growth is critical to job creation and a steady increase in household living standards over time,” added Naomi Mathenge, World Bank Senior Economist for Kenya.
The World Bank has further thrown its weight behind the government fiscal consolidation efforts which has seen budget deficit in fiscal year 2021/22 narrow to 6.2pc from 8.2pc thereby stabilising the debt-to-GDP ratio to about 67.3pc in FY21/22.