Kenya to gain from stimulus in 2010

March 18, 2010

, NAIROBI, Kenya, Mar 18 – A reduction in spending by governments globally towards the end of the year is likely to curb economic growth, the World Bank has said.

Speaking during the release of the Global Economic Prospects 2010 report, World Bank Economics Prospects Manager Andrew Burns said this would be mainly due to the declining impact of fiscal stimulus injected by the government in the 2009/2010 financial year.

Mr Burns said while the worst of the crisis was over, global recovery was fragile and would require participation from the private sector to bridge the gap.

“The reality is the kind of stimulus the government is able to provide can have a temporary gap filling effect but if you compare the size of those packages with the global economy its miniscule,” Mr Burns said.

He however said the situation could be different in Kenya as the government plans to inject the larger part of the stimulus in the second half of the year.

Despite the muted growth, the report indicates that sub-Saharan economies could grow by 3.8 percent in 2010 accelerating to 4.2 percent in 2011.

Mr Burns added the government would have to watch its current budget deficit warning it could lead unmanageable debt levels.

“What is encouraging in Africa is that going into the crisis countries used the good times to pay down their debt and prepare the ground to respond when the stimuli was needed,” he said.

The World Bank anticipates economic growth of 4.6 percent in 2011 and estimates the region grew by between 1.0 and 1.1 percent in 2009.

Lead economist Wolfgang Fengler said Kenya’s economic growth has been constrained by recurrent droughts and electricity shortages.

During the period, major export crops fell with tea output down 11.6 percent and horticulture output down 7.4 percent in the first eight months of 2009.

The bank expects the economy to grow to 3.7 percent in 2010 accelerating further to 4.8 percent in 2011.

Private capital flows to developing countries is expected to recover to between 3.5 and 4 percent of gross domestic product in 2010 and 2011 and by 4.0 and 5.0 percent range of GDP.

“As the international financial conditions tighten firms in developing countries will face higher borrowing costs, low levels of credit,” Mr Burns said.

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