Kenya Forecasts Economy to Expand at Fastest Pace in Decade

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Kenya expects a strong economic recovery this year as the nation’s coronavirus vaccination program gains momentum and the services industry rebounds from a brutal pandemic fallout.

East Africa’s largest economy is forecast to expand 6.6% from an estimated growth of 0.6% in 2020, driven by increased activity in services, according to the Treasury. That could be the highest growth rate in at least a decade, according to International Monetary Fund data. Growth could ease to 5.8% next year.

“Our economy will rebound to above 6% over the medium term,” Treasury Secretary Ukur Yatani said Thursday in the Kenyan capital, Nairobi. Growth will depend on “the progress of the vaccination effort, macroeconomic stability and implementation of the projects” aimed at boosting health care, housing, manufacturing and food security, he said.

The government is moving to ramp up vaccination, with doses from its order of at least 13 million Johnson & Johnson shots expected to start arriving this month, in a bid to avoid any more economy-crippling lockdowns. A boost in economic activity will help Kenya increase public revenue as it looks to ease its debt burden.

The reopening of hotels, restaurants and an improvement in travel due to the easing of movement restrictions will help the services industry to lift its contribution to GDP growth to a projected average 6% this year. The number of hotel workers climbed to 62% of pre-pandemic levels in July, according to a central bank survey.

“Cautious Outlook”

Yatani said the government’s plan for fiscal consolidation is on track, and the budget deficit is expected to narrow to 5.6% of gross domestic product in 2022-23 from a target of 7.5% of GDP in the year that started July 1. That partly depends on the authorities achieving a target to grow ordinary revenue by 20.6% in the next fiscal year, while reducing expenditure as a portion of GDP.

“Stabilising Kenya’s public debt ratio and getting debt service to more manageable levels will be key areas of focus in the years ahead,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank. “We maintain our cautious outlook given rising (Covid-19) cases in Kenya amid a new variant,” Khan said, forecasting economic growth to accelerate to 5.3% this year.

“Kenya’s recently negotiated three-year IMF programme is likely to anchor fiscal credibility,” Khan said. “The IMF programme makes allowances for near-term economic uncertainty, deferring more significant fiscal consolidation and a primary fiscal surplus to the later years of the programme.”

The Treasury targets to present the 2022-23 national budget in March, earlier than it usually does in June, due to elections scheduled next August. That’s to ensure lawmakers debate and approve spending plans before they head off for the balloting season.

“Elections due in 2022, with the holding of a constitutional referendum still unresolved, may also be a source of uncertainty, potentially weighing on near-term investment plans,” Khan said.

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