Treasury sees growth hitting seven-year high

The imposition VAT on fuel has triggered widespread fears that the economy is bound to deeply suffer.
However, the government seems to hold a contrary view, with the National Treasury upgrading Kenya’s economic growth projection for this year to six per cent from 5.8 per cent in June.

The Treasury is largely banking on renewed confidence by private investors and increased agricultural output.

Heavy rains in the second quarter of the year and the March 9 truce between President Uhuru Kenyatta and opposition chief Raila Odinga — popularly known as the ‘handshake’— are likely to lift growth to a seven-year high, Treasury secretary Henry Roti said.

Kenya’s economy last expanded at the projected pace in 2011 when growth was 6.1 per cent.

Economic activities last year buckled under the weight of a biting drought in the first half, which hit farming activities hardest, and elevated political uncertainties following a bruising presidential contest in the second half that put on hold a raft of investment decisions.

That, together with the debilitating effect of a sharp drop in loans to the private sector due to legal ceilings on loan charges starting from September 2016, resulted in the slowest growth in national wealth in five years at 4.9 per cent.

“Economic recovery is on course reflecting a return to stability and renewed confidence following the conclusion of the lengthy electioneering process in 2017 and improving weather conditions,” Mr Rotich said.

A higher expansion in the economy as a result of increased public and private investment offers a glimmer of hope for hundreds of thousands of unemployed graduate youth and is expected to grow tax revenue projected at Sh1.69 trillion in the year ending next June.

Improved growth prospects will be cheered by business chiefs who had earlier in the year adopted a cautiously optimistic stance on the recovery from last year’s prolonged presidential poll and interest caps on loans.

The ceiling of loan charges at 14 per cent has cut off financial streams to the dominant micro and small-sized enterprises, which commercial banks perceive to be riskier than the four per cent risk allowance under the law.

A study by consultancy firm KPMG on 51 chief executives of large companies in East Africa, including 19 in Kenya, suggested that three-quarters of the CEOs expect a maximum growth of two per cent in gross revenue.

That level of revenue growth, majority of the CEOs interviewed in the study released in May said, was likely generate weak momentum in recovery which will yield a less than five per cent rise in new job opportunities over three years.

The Treasury, however, sees a faster rate of growth further buoyed by a broadly stable inflation and interest rate regime.

The growth projection is lower than Central Bank of Kenya’s 6.2 per cent, but higher that World Bank Group and sister firm, International Monetary Fund, which have both predicted a 5.5 per cent growth for 2018.

The outlook comes in the wake of a 0.1 percentage point upgrade by world’s leading banks, consultancies and think tanks.

A consensus growth outlook for September from 12 global firms projects the country’s economy is likely to expand by 5.6 per cent this year from 5.5 per cent last month, and then rise further to 5.9 per cent in 2019.

“Solid growth is expected this year, thanks to healthy expansions in private consumption and investment amid more favourable credit conditions,” researchers at Focus Economics, a Barcelona-based economic forecast and analysis firm that compiles the global forecast data, say in the report released on August 21.

“A continued upturn in the agricultural sector, aided by improved weather conditions, should also support growth. Moreover, rising investor confidence should attract a greater inflow of foreign investment into the economy.”

The economists, however, said the planned budget cuts by the government could put a damper on their growth outlook.

President Uhuru Kenyatta has proposed a budget reduction of about Sh46 billion to fill the financing gap, which includes the planned halving of the Value Added Tax on petroleum products to eight per cent, through a supplementary budget to the National Assembly.

“These budget cuts ask of us in government that we tighten our belts. It also ensures that the sacrifices made by tax-compliant Kenyans are matched by discipline from all of us in the public service,” Mr Kenyatta said in an address to the Nation on Friday.