NAIROBI, Kenya, Mar 23 – The International Monetary Fund (IMF) has lowered Kenya’s Gross Domestic Product growth projections to 6 percent in 2016 from 6.8 percent.
This marks the second revision having lowered projections from 7.2 percent to 6.8 percent in November 2015.
The downwards revision of medium term potential was as a result of tighter external and domestic financing conditions that will reduce private and public investments relative to earlier forecasts.
Growth is expected to pick up further after 2016, supported by continued improvements in the business environment, modernized and expanded transport and energy infrastructure, and regional integration.
The IMF concurred that risks to the growth outlook were on the downside for Kenya, but noted a potential increase in volatility of capital flows as representing the strongest downside risk.
Other risks include residual security challenges, the uncertain impact of weather-related effects of El Nino on agriculture and pockets of vulnerabilities in the banking system.
This comes after the Fund approved Kenya’s application for a total of Sh152.3 billion ($1.5billion) in a precautionary credit facility.
Precautionary arrangements are used when countries do not intend to draw on approved amounts, but retain the option to do so should they need it.
IMF Deputy Managing Director and Acting Chair Min Zhu says the decision by the IMF executive board follows Kenya’s commitment to only use the credit facility in the event of exogenous shocks with a negative impact on balance of payments.
“Kenya’s recent growth performance remains robust and the outlook is positive. Despite positive policy steps undertaken under the current Fund-supported program, the economy remains vulnerable to shocks, reflecting less favourable global financial market conditions, as well as continued security threats and potential extreme weather events,” Zhu said.
– Risks –
However, even with the projected growth, a few risks face the economy and need to be looked at.
According to Genghis Capital Macroeconomics Analyst Kevin Tuitoek some of the risks include the heated political climate that has rocked the country more than 15 months before the general elections.
“Political parties have commenced early campaigns while mini elections in several areas have only served to heighten these sentiments; however there is a minimal risk of any significant shock from this year from a political backlash, most temperatures will be reserved till the campaigning period that will officially hit up next year, “Tuitoek explained.
Other risks he pointed out include security threats that are yet to be fully eliminated and corruption that still remains rampant.
“Despite calls for a more radical approach towards ending the scourge of corruption in Kenya, the process remains clogged I a slow tangle that delays the course of Justice,” he added.