Kenya’s economy to grow 6% in 2017- World Bank

Kenya’s economy is expected to grow by 5.9% in 2016, the World Bank said on Monday, unchanged from an earlier forecast and up from actual growth of 5.6% last year.

Agriculture, tourism, and increased foreign direct investments will drive growth, the bank said.

“This is a relatively robust performance against an average growth of 1.7% forecast for sub-Saharan Africa in 2016,” the bank said in its latest economic update for Kenya.

“While all sectors contributed … the agriculture and services sectors have been the primary drivers of growth, thus far in 2016.”

The World Bank predicted that Kenya’s economy will grow by 6% in 2017 — also unchanged from its March update — and 6.1% in 2018. In 2015, attacks from Somalia’s al Shabaab militants hit Kenya’s tourism sector, reducing foreign exchange earnings.

Next year, Kenya will hold presidential elections, pitting incumbent President Uhuru Kenyatta against several challengers, who are likely to include opposition leader Raila Odinga. In the wake of the 2007 vote, the country plunged into violence after Odinga’s supporters said the election was rigged.

The bank said risks to growth included the coming elections, which will also select national MPs and regional government representatives.

“On the domestic front, these (risks) include delays to fiscal consolidation, adverse weather developments, and potential uncertainties associated with the run-up to 2017 elections that could lead to a wait-and-see attitude by investors,” the bank said.

The recent introduction of caps on commercial bank lending rates could also pose a risk, the report said.

“The recent introduction of the interest rate caps could constrain credit growth to the private sector and low-income households,” it said.

“If fiscal consolidation is delayed, particularly due to election-related spending, increased government spending may crowd out private sector investments and lead to overheating of the economy resulting in high inflation.” The government forecasts Kenya’s economy will grow 6 percent in 2016 and by 7% a year in the medium term.

The bank said Kenya’s public debt to gross domestic product ratio had risen to 55.1% in 2015/16 (July-June) from 42.1 percent in 2012/13 due to an increase in development spending, especially on infrastructure.

The bank said debt levels were sustainable, but urged caution.

“With debt levels over 50% of GDP, and fiscal deficits well above the medium term 4.5% target, the fiscal policy space is fast eroding and margins for further debt accumulation are narrowing,” it said.