BY TNLM REPORTER
Although economic growth in Kenya fell far below expectations in 2014, the country’s gradual economic recovery is expected to pick up steam in 2015 and 2016. Real Gross Domestic Product (GDP) growth will average 6.4% between 2015 and 2018, according to various predictions.
In its survey, a leading global researcher network based in United States, MarketResearch, says Kenya’s fiscal health is improving but disappointing real GDP growth and increased transfers to county-level governments will slow fiscal consolidation.
The World Bank had forecast East Africa’s largest economy to expand an annual 4.7 percent in 2014 and 2015. “The rains arrived late and the security situation has deteriorated, which is hurting the tourism sector and instilling fear in both existing and prospective investors … These developments caused the World Bank to revise its projection downward.”
MarketResearch which expects Kenya’s fiscal deficit to narrow from 5.3% in 2014/15 to 4.5% in 2018/19, says that “an improving food security situation and government cuts to fuel and energy prices will keep Kenyan inflation contained”.
Weak export growth and the implosion of the tourism sector will keep Kenya’s current account deficit wide in 2014 and 2015. Lower oil prices will cause the shortfall to narrow slightly between 2016 and 2018.
Real GDP growth in Kenya will gradually accelerate over the coming next 10 years, averaging 6.5% between 2015 and 2023. Kenya’s economy is relatively diversified, and growth will be broad-based and comparatively sustainable.
According to MarketResearch, updated GDP figures have not led us to significantly revise our outlook for the Kenyan economy. Achieving ‘middle income’ status may increase investor interest in the country over the longer term.
Kenya has been classified as a middle-income country after a statistical reassessment increased the size of the economy by 25 per cent, based on 5-year average of 2009 to 2013, with GDP expanding to Sh4.76 trillion up from Sh3.8 trillion, making it the continent’s ninth biggest economy in Africa and fifth biggest in sub-Saharan Africa. Currently, GDP per capita stands at Sh111,330 up from Sh88,813.
According to Treasury statements and figures by KNBS, the revision also shows that Kenya’s growth rate in 2013 was 5.7 per cent, well above the previous estimate of 4.7 per cent, which is the average in sub-Saharan Africa.
“This revision also lowered the country’s debt-to-GDP ratio from 56 per cent to 48 per cent and makes it eligible for new borrowing at a time when the Government is looking to tap international markets to fund infrastructure projects.”
Consequently, the National Assembly last month passed bill to raise the country’s external borrowing from Sh1.2 trillion to Sh2.5 trillion to cater for the proposed mega-projects that include the Standard railway Gauge and a host or road constructions.
In order to finance the Sh1,840 billion budget, Treasury projects to raise Sh1,374.1 billion in exchequer revenue during the 2014/15. Among key sources targeted include the tax income category (Sh1.1 trillion), Net domestic borrowing (Sh190.8 billion), Commercial Loan (Sh36.4 billion), non-tax income (Sh36.2 billion) and foreign loans, according to Controller of Budget Agnes Odhiambo.
Other sources include bilateral and multilateral grants (Sh10 billion), grant from AMISOM (Sh6.1 billion), social safety net loan (Sh2.0 billion) and domestic lending (Sh2 billion).
FY 2014/15
The public debt stock stood at Sh2.3 trillion as at September 30, 2014. Of this, Sh1.2 trillion was borrowed within the country while Sh1.1 trillion comprised the foreign debt, according to Office of Controller of Budget in its report, National Government Budget Review Implementation Report 2014/15.
Sh118.8 billion went to service public debt. In the three month’s period to 30th September, 2014, a total of Kshs.110.4 billion was issued towards repayment of domestic debt. This comprised of Kshs.81.4 billion for debt redemption and Kshs.29.0 billion for interest payment, says Controller of Budget Agnes Odhiambo says in the report published last October.
The month-on-month inflation rate dropped for the first time in September 2014 after rising for five consecutive months between March 2014 and August 2014. The last month of the first quarter of 2014/15 saw a substantial drop in the inflation rate from 8.36 per cent in August 2014 to 6.6 per cent in September 2014.
The Controller of Budget attributes the drop to the fall in the cost of kerosene and electricity. “In mid-September 2014, the Energy Regulatory Commission (ERC) reduced the price of super petrol by Sh4.98 per litre, kerosene by Sh1.42 per litre and diesel which decreased by Sh0.62 per litre. The transport index decreased 0.41 per cent, mainly due to reduction of pump price of petrol and diesel in September 2014 compared to August 2014.”
The Kenya Revenue Authority (KRA) estimated to collect Sh1,055 billion. The targeted revenue for the first quarter was Sh267.0 billion or 23.8 per cent of the annual estimate.
During the first quarter, the total revenue collected was Sh249.2 billion representing 92.7 per cent of the quarter’s target.
To increase tax collection, KRA has embarked on implementing the Capital Gains tax as well as enforce PAYE and VAT remittance by County Governments. Other revenue enhancement measures being pursued by KRA include implementation of withholding VAT requirements and deployment of new staff to boost customs performance.
At the end of last financial year, the government secured a Sovereign Bond of US$2 billion (Sh180 billion) to fund development projects, and repay the syndicated loan. However, part of the proceeds amounting to Sh50 billion was used to meet shortfall in domestic borrowing, according to the Controller of Budget.
Email your news TIPS to Editor@nairobilawmonthly.com, and to advertise with us, call +254715061658 anytime of the day
