Graft, mismanagement of public funds setback to economic growth

By Nicholas Nduati

The projected 6.9% GDP growth of the Kenyan economy last year may not be realized as a result of serious challenges that faced the economy, among them depreciation of the shilling, failure by KRA to hit its collection targets and increased cases of corruption and mismanagement of public funds.

The Cytonn weekly report projects that the 2015 full year GDP growth will be between 5.3% and 5.7% following a strong GDP growth of 5.8% in Quarter three, higher than their earlier 4.9% projection.

At the beginning of the year, the Kenyan economy was expected to grow at an impressive 6.9% underpinned by among others adequate rainfall and consistent agricultural production, high government spending on infrastructural projects such as the SGR and LAPSSET, and the recovery of the tourism industry.

However, depreciation of the shilling against the Dollar by up to 13% affecting companies that rely on imported inputs, as well as failure by the Kenya Revenue Authority to hit its tax collection target by Kshs 28 billion among others resulted to slowed economic growth.

Inflation also increased gradually over the year from 6% in December 2014, to 7% in June, and 8% in December.

Lower oil prices led to a slight decline in the inflation rate, however the weakening shilling, effect of the El-Nino rains on agricultural food prices, and price increases in beer and cigarettes due to the Excise Duty Bill have eroded all the gains made, with inflation now past CBK’s upper barrier of 7.5%.

With this, the Cytonn report projects that inflation will remain above the upper bound given the rising oil prices and the hesitation by the CBK to raise rates to stem inflation under the belief that raising the rates may be detrimental to the economy.

In the third quarter, GDP growth came in at 5.8%, supported by the Construction industry, Mining and Quarrying, Electricity Supply and Financial Intermediation.

With GDP growth figures for the first 3 quarters out, and a strong GDP growth of 5.8% in Q3 higher than previous projections of 4.9%, Cytonn has revised upwards the full year GDP growth projection to between 5.3% and 5.7%.

Given the measures taken to address the challenges facing the economy such as beefing up dollar reserves by the CBK to 4.6 months of import cover to support the shilling, reshuffling of the cabinet to stem corruption, and the passing of the Tax Procedural Bill that will synergize tax collection mechanisms, the report projects that GDP growth will remain steady going forward.



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