Kenya’s economy is projected to grow by an average five per cent (5%) this year, World Bank now says, as global and domestic shocks continue to impact on economies.
It is expected to pick to 5.3 per cent next year even as the country lags behind its East African peers of Tanzania and Uganda, which have stronger forecasts.
Tanzania’s economy is expected to grow by 5.3 per cent this year and 6.1 per cent next year, while Uganda has a similar projection with Kenya of five per cent this year, but a stronger forecast of 6.1 per cent in 2024.
The latest projections, captured in the World Bank January 2023-Global Economic Prospects Report, is a downward revision from an earlier stronger forecast of 5.2 per cent for Kenya this year.
This comes amid an expected sharp drop in global growth to 1.7 per cent in 2023—the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic in 2020 and the global financial crisis in 2009.
Global inflation has been more persistent than previously assumed, and high core inflation suggests that inflation may remain above pre-pandemic averages in many countries for an extended period.
To rein in high inflation and bolster credibility, major central banks have tightened policy at the fastest pace in more than 40 years.
The Central Bank of Kenya last year raised the base lending rate twice, from 7.5 per cent in July to 8.25 per cent in September, and then 8.75 per cent in November.
Apex banks globally use the interest rates as either a gas pedal or a brake on the economy when needed.
With inflation is running high, they can raise interest rates and use that to pump the brakes on the economy in an effort to get inflation under control.
However, aggressive monetary policy tightening to contain high inflation, deteriorating financial conditions, declining confidence, and widespread energy shortages have contributed to a downgrade in global growth of 1.3 per centage points, World Bank notes.
The United States, the euro area, and China are all undergoing a period of pronounced weakness, and the resulting spillovers are exacerbating the headwinds faced by Emerging Markets and Developing Economies (EMDEs.)
A deeper-than-anticipated slowdown of the global economy could cause sharp declines in global commodity prices dampening growth in Sub-Saharan Africa, mainly exporters of oil and industrial metals.
Global financial conditions could tighten more if global inflation pressures persist longer-than-expected leading to higher borrowing costs and a higher risk of debt distress in many African countries, World Bank notes.
"Government debt distress would have large adverse spillovers on growth and financial stability in many countries, especially where banks are heavily exposed to sovereign debt (Ghana,Kenya, Sierra Leone),”World Bank reports reads in part.
Kenya’s is currently struggling with a rising debt, which was at Sh8.7 trillion in October, having risen from Sh7.9 trillion in October 2021.
Inflation has remained above the preferred 7.5 per cent since June last year hitting a five-year high of 9.6 per cent in October before easing to 9.5 and 9.1 in November and December, respectively.
“The rise in inflation was largely due to increase in prices of commodities under food and non-alcoholic beverages (13.8%), transport (13.0%) and housing, water, electricity, gas and other fuels (6.2%) between December 2021 and December 2022,” Kenya National Bureau of Statistics said.
According to World Bank, Sub-Saharan Africa food systems, already stressed by elevated costs of farming inputs and weather-induced production losses, remain particularly vulnerable to further disruptions that could lead to surging food prices and increased food insecurity.
Kenya has endured prolonged droughts lowered agricultural output, a sector already stressed by high production costs.
Growth in Sub-Saharan Africa is expected at 3.6 per cent in 2023 and 3.9 per cent in 2024.
Compared to the June forecast, growth was revised down for almost 60 percent of countries, including downward revisions for over 70 percent of metal exporters which are expected to be affected by the further easing of global metal prices, World Bank says.
“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates, said World Bank Group President David Malpass.
Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change, Malpass added.