World Bank retains Kenya’s growth outlook at 5.5% against economic shocks

The World Bank Group has retained Kenya’s growth projection at 5.5 per cent for 2022 in its latest country economic update.

The multi-lateral lender has also retained its outlook for 2023 and 2024 at five and 5.3 per cent respectively, the same rate as in June this year.

World Bank expects growth to be anchored on improved private consumption and gains on fiscal consolidation even as shocks, including drought, rising inflation and tighter global financing conditions.

“The ongoing favourable trends in the underlying drivers of Kenya’s recent consumption growth are expected to continue including the recovery in employment, resilient diaspora remittances, and increase commodity prices favourable for Kenyan exports to boost Kenya’s growth in the medium term,” the World Bank noted.

The services industry is expected to deliver the highest source of growth in the year at 7.9 per cent ahead of the industry at 4.9 per cent.

The agriculture sector is nevertheless expected to lag overall growth contracting by an estimated 1.6 per cent in the year.

Phasing out subsidies and recurrent spending controls are meanwhile expected to deliver fiscal consolidation with the government eyeing to trim the fiscal deficit to 4.4 per cent of GDP by June 2024.

The looming recession in Europe nevertheless poses the risk of undercutting recovery in Kenyan exports and tourism according to the World Bank while the prolonged Russia-Ukraine conflict is seen increasing Kenya’s import bill.

Moreover, tight financial conditions are seen as a constraint to Kenya even as the World Bank expects the country to access concessional/cheap funding offsets shortfalls in external financing.

“The government’s commitment to use concessional borrowing is expected to continue to provide access to finance without jeopardizing development needs and improve external debt sustainability,” the World Bank added.

Inflation is projected to ease back to the government target range of 2.5 to 7.5 per cent at 7.3 per cent at the close of the year and later fall to 5.5 per cent in 2024.

The fiscal deficit is meanwhile estimated at 6.2 per cent of GDP with debt as a percentage of GDP at 67.3 per cent while the current account deficit (CAD) is seen at six per cent of GDP this year.