Kenya, among other developing countries, is staring at slowed growth rate following the unprecedented swings in commodity prices witnessed in the recent past, IMF now says.
In its latest report on food and energy insecurity, exploring the effects of volatile commodity prices on economic prospects and inflation, it says the up-and-down swings in commodity prices will likely pose economic challenges in coming years.
“The size and speed of swings in commodity prices will hurt economies’ growth globally, and make inflation more volatile in the years to come even as prices decline,” the lender says.
Kenya's growth prospects had earlier been revised downwards by the lender to a slow of 5.3 per cent by the end of this year, down from last year’s projection of 7.5 per cent.
It attributed the projection to downturns in advanced economies and emerging markets.
In its new outlook, its attributes the impending slow growth and rise in inflation to volatility in commodity terms of trade, the movement of prices that a country pays for commodity imports and the prices it receives for commodity exports.
The movements have greatly been influenced by the strengthening of the US dollar against local currencies.
Kenyan importers have been grappling with high costs of importation on the back of the dwindling shilling which has weakened 15 per cent year-to-date against the dollar closing at 132.12 yesterday.
Importers are thus forced to pass on the burden to consumers through hiked basic commodity prices, pushing inflation levels beyond the statutory requirement of 7.5 per cent.
Last month, the country’s inflation stood at 9.2 per cent on rising food prices and the weak shilling, even as the IMF projects further rise in the coming months
Food and energy prices have surged to near-historic highs in recent years amid the pandemic and the war in Ukraine, which prompted major supply disruptions.
This was accompanied by a sharp rise in the volatility of commodity prices as well.
The challenges from heightened commodity price volatility come on top of the problems caused by the surge in price levels.
Data by the Food and Agriculture Organisation (FAO) shows world food commodity prices rose nearly 40 per cent in the two years just before Russia’s invasion of Ukraine, and the war propelled prices even higher.
Wheat prices jumped 38 per cent in March 2022 from a month earlier.
Nevertheless, energy prices rose sharply, with natural gas prices almost tripling.
High energy prices also fed into record prices of commonly used fertilizers for food production.
The lender reiterates that such swings in commodity prices can weigh on long-term economic growth, especially for commodity exporters.
"Higher volatility in commodity prices may induce greater volatility in government finances in commodity-exporting countries, and thereby lead to stop-start public investment," IMF says.
In turn, this would weigh on both physical and human capital investment, the lender adds in a statement.
Kenya’s exports have been termed insufficient in addressing the country's trade deficit which widened by 15.8 per cent in the third quarter of 2022.
This was pushed by an increase in the costly importation of petroleum products and fertilizer.