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Kenya's Economy Poised to Rebound and Remain Robust through 2022


Source: www.worldbank.org

NAIROBI, June 10, On a macroeconomic level, the new Africa momentum has also been evident. Africa has weathered both the global financial crisis, and the turbulence in the Euro zone and the current pandemic.

Kenya’s real gross domestic product (GDP) growth rose to 5.8% in 2019, and was projected to 6.0% in 2020 before the pandemic crisis, according to the World Bank’s Kenya Economic Update (KEU).Kenya’s medium-term growth is projected to rebound fast (to about 5.6 percent over the medium term), on assumption that investor confidence will be restored soon after the COVID-19 pandemic is contained. While the long term 2021 and 2022 projection is being pegged at around 6.1%.

A week hardly goes-by without one or more international investors announcingmajor investment interests in Nairobi, or other African capital cities.The economic updateattributes the rebound to a recovery in agriculture, steady pick-up in industrial activity and continued robust performance of the services sector. The pick-up in Kenya’s economy is also reflected in improved household consumption and a developing recovery in private investment.

“We recognize that Kenya must balance between reducing the spread of the virus and cushioning Kenyans particularly informal workers and youth who make up 70 percent of the population from the adverse economic effects posed by COVID-19,” said Felipe Jaramillo, World Bank Country Director for Kenya. “In partnership with other development partners, we are supporting the Government of Kenya through financing and technical advice to strengthen its health systems capacity to contain the spread COVID-19.”

Kenya adds more than one million people per year to its population, and will reach an estimated 85 million by 2050. Household consumption is supported by strong remittance inflows and improved rains which has led to better harvests and lower food prices. Similarly, private sector investment is buoyed by improving investor sentiment and the availability of previously pent-up investment demand after a challenging 2019. Further, with benign inflationary conditions, a stable exchange rate, and healthy accumulation of reserves, the stable macroeconomic environment has been broadly supportive of the economic recovery. None the less, with private sector credit growth remaining subdued at 4.3% this pick-up is being curtailed by limited access to credit, as well as headwinds from fiscal consolidation.

“The Bank lauds the government for embarking on needed fiscal consolidation to safeguard macroeconomic stability and help crowd in private sector investment”said Carlos Felipe Jaramillo, World Bank Country Director for Kenya. “Further recalibrating the slowdown in expenditures between recurrent and development spending in favour of the former should allow fiscal consolidation to become more growth friendly.”

Since the 2017 announcement of the “Big 4” development agenda, which prioritizes food security, housing, universal health coverage and manufacturing, Kenya has made some progress in instituting policies that crowd-in private sector engagement, particularly within the affordable housing pillar. The legal and regulatory framework for the Kenya Mortgage Refinance Company (KMRC) has been completed, the Stamp Duty Act providing an exemption for first-time home buyers has been signed into law, and standardized forms to register a change in property ownership have been introduced. Further reforms are needed to advance the goals of food security and nutrition, universal health coverage and manufacturing competitiveness, to maximize the inclusiveness of economic growth.

“While progress is being made to advance the “Big 4”, given the ambitious nature of these objectives, it calls for accelerating the pace of structural reforms, particularly in areas that helps crowd in the private sector to advance the “Big 4,”said Allen Dennis,World Bank Senior Economist and Lead Author of the KEU.




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