NAIROBI, Kenya, Sep 20 – Kenya’s GDP growth is expected to decline to 5.7 per cent in 2022 owing to a wider global economic slowdown, heightened uncertainty linked to the August elections, and tighter fiscal policy, Deloitte has said.
This is 1.2 percentage points lower compared to the country’s 7.5 per cent GDP growth in 2021, which was 1.2 per cent higher than the audit firm’s projection.
In its East Africa Macroeconomic Publication, Volume III themed ‘Resilience Through Tough Times’, Deloitte also forecast Kenya’s debt to GDP ratio to reach 72.0 per cent in 2022 due to the contraction in government income.
The country’s debt to GDP ratio stood at 70.0 per cent in 2021.
Further, the firm expects the Kenyan shilling to weaken further to 119.9 units against the US Dollar(USD) by the end-2022, exacerbated by elevated global oil prices owing to global inflation and the uncertainty linked to the August elections.
“The shilling weakened against the United States Dollar (USD) to KES 109.6/USD on average in 2021, driven by a wider current account deficit. In June 2022, the shilling traded at KES 117.3/USD and is expected to weaken further,” Deloitte said.
The shilling on Tuesday hit an all-time low against the dollar, signalling inflation and higher cost of imported goods.
Central Bank of Kenya (CBK) data shows the Kenya shilling to the dollar exchanged at an average of 120.45 on Tuesday.
The country’s account deficit is also expected to widen further to 5.8 per cent in 2022 owing to fiscal pressures ahead of the August election and elevated debt service payments.
Kenya’s current account deficit widened slightly to 5.4 per cent of GDP in 2021, official data shows.
On the positive side, Foreign Direct Investment(FDI) inflows are forecasted to increase by 81.4 per cent in 2022, reaching USD 1.3billion(Sh156.6billion), driven by rising investment by private equity firms, multilateral institutions, and bilateral investment bodies.
FDI inflows to Kenya declined by 60.0 per cent, from USD 716.8million(Sh86.3billion) in 2020 to USD 448.1million(Sh54billion) in 2021.
For East Africa, GDP growth prospects are expected to moderate to 5.3 per cent in 2022 compared to 6.4 per cent in 2021 due to increasing global commodity prices coupled with supply chain shocks.
“We believe growth will further be affected by downside risks stemming from political uncertainty, depreciation of local currencies and reduced agricultural yields leading to higher inflationary environment,” said Deloitte East Africa Corporate Finance and Economic Advisory Lead Tewodros Sisay.
