Kenya’s economic growth is set to hit seven per cent next year, for the first time since 2007, on the back of increased foreign direct investment and improved balance of trade.
This is the view of the International Monetary Fund (IMF) as revealed in a new report focusing on sub-Saharan Africa. It says the local economy will also benefit from a lower current account deficit, which is the difference between imports and exports.
Growth in GDP is expected to be 7.2 per cent, an improvement from the estimate for this year, which the Bretton Woods institution has put at 6.9 per cent. In 2007, GDP growth was 7.0 per cent, but has since not returned to this level.
ANCHORED ON INFRASTRUCTURE
This year’s economic growth is anchored on, among other things, investments in infrastructure, especially the standard gauge railway, where more than Sh400 billion is to be spent in the next few years, said the IMF.
The net foreign direct investment is forecast to rise from 1.1 per cent of GDP last year to 1.7 per cent this year and further to 1.9 per cent next year.
Kenya is also likely to be a beneficiary of lower oil prices, which should improve the trade balance, thereby cutting the current account deficit.
According to the forecast presented by the IMF, the negative trade balance on goods is expected to improve from last year’s 18.9 per cent of the GDP to 17.6 per cent and fall further to 17.3 per cent next year.
As a result of the improving trade balance, the traditionally negative current account will also improve from last year’s 9.2 per cent of GDP to 7.7 per cent this year before falling again to 7.4 per cent next year.
The IMF notes that Kenya will be among the countries benefiting from the prices of oil which have fallen from highs of $115 a barrel last June to below $70 currently.
Not only are the lower prices likely to raise consumption in households and firms — with positive implications for GDP — but will also increase government revenues derived from consumption-related taxes.
“Where the decline in prices is passed on to consumers (for instance in Ethiopia, Kenya, South Africa, Tanzania, and Uganda), consumption will increase to the extent that households and firms spend part of these savings; this, in turn, would increase revenue from taxes on goods and services,” said the IMF report.
The huge investments in infrastructure as well as in other sectors would also continue to push up the fiscal deficit in Kenya, the IMF data showed. This year the deficit — excluding grants — will rise to 8.1 per cent of GDP from last year’s level of 7.3 per cent, but should improve next year to 6.6 per cent.