CBK forecasts 6.2pc economic growth

By O’Brien Kimani

The economy is expected to register better economic expansion this year. Estimates from various institutions project that the economy will breach the 6 percent economic growth rate this year from 5.6 percent recorded in 2015.

However, economic and tax experts agree that for Kenya to achieve this growth it will need to accelerate budgetary absorption, reform her tax laws and improve its investment climate.

On the global arena, Kenya holds the distinction as one of the star economic performers of the world in 2015 after returning a growth rate of 5.6 percent last year.

This is well above the global expansion rate of 3.1 percent and higher than the average GDP growth in Sub-Saharan Africa of 3.8 percent.

However, it was lower compared to the GDP growth in countries such as Tanzania at 6.9 percent, Rwanda at 6.5 percent and Ethiopia at 10.2 percent.

Central Bank Governor Dr. Patrick Njoroge says Kenya’s economy could have expanded at a higher rate but was dragged by internal and external factors.

The governor is of the opinion that this year the growth will be much better due to ongoing fiscal reforms and improving global prospects. He projects that the economy will grow by 6.2 percent this year.

The growth is expected to be driven by the building and construction sector, infrastructure development and private sector investment in residential and commercial properties.

The agricultural sector is also expected perform well, although lower rains in 2016 may reduce growth of the sector compared to 2015. Innovations in ICT are expected to continue to spur growth in financial services sector.

He says the macro-economic indicators are expected to remain stable in 2016 to support growth, with inflation expected to be contained within a single digit.

During its latest meeting, the Monetary Policy Committee lowered the benchmark interest rate from 11.5% to 10.5% in a move to spur credit to the private sector and manage inflation.

But University of Nairobi economic lecturer Dr. XN Iraki says though economic prospects look promising, a number of domestic and external factors could affect the projected performance of the economy.

A slowdown in economies that are traditional markets for Kenyan exports could lead to subdued demand for local exports.

Experts from Price-Waterhouse Coopers say weakening of regional currencies against the US Dollar and Kenyan Shilling could impact competitiveness of Kenyan exports and affect foreign exchange earnings.

Dr Iraki says the recent series of protests against the IEBC that have turned violent may also impact negatively investment and business climate in the country. The looming national election is also likely to drag growth due to fear of violence.

In 2015, the growth of the manufacturing sector was tempered by the high cost of credit and cheap imports. Fiscal contraction and a shift from domestic to external financing of deficit is however expected to expand the credit available to private sector and spur growth in manufacturing and other sectors according to PWC.

Since the fiscal year 2011/12 tax collections have steadily grown from 733 billion shillings to a projected 1.3 trillion shillings in current financial year 2015/16.

Despite the upward trend in tax collection, PwC tax partner Job Kabochi says the taxman needs to formulate mechanisms to broaden the tax base to achieve its ever growing targets.

Kabochi says some of the measures include taxing the informal sector, simplifying the tax law and making it easy to pay tax.

In addition, KRA should consider integrating the mobile platform to its tax payment systems to allow easier payment of taxes.

According to budget policy statement tabled in parliament by the cabinet secretary, the government plans to curb domestic borrowing by nearly a quarter to 168 billion shillings in favor of external financing, which will increase to 346.5 billion shillings from an earlier projection of 340.5 billion shillings.

Experts are of the opinion that if Kenya sticks to this lane of fiscal reforms and improve business climate in the country, the country will register better than normal economic growth in the short to medium term.

  

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