The Parliamentary Budget Office (PBO) has differed with the National Treasury over Kenya’s growth prospects for the year 2024 as quarterly output figures weakened, signalling a muted recovery of an economy battered by dwindling consumer incomes and declining credit to the private sector.
The country’s real gross domestic product (GDP) posted three consecutive quarterly declines last year painting a grim picture of a faltering economy.
Parliamentary budget experts through their latest quarterly Economic Bulletin (December 2024) say the National Treasury‘s revised growth forecast of 5.2 per cent for the year 2024 is unattainable and the economy is instead likely to grow at a lower rate of 4.8 per cent.
This is largely a result of increased taxes, declining private sector credit, falling revenue collections and the multiplier effects of the government’s fiscal consolidation plan, including a reduction in public consumption and investments.
“Although government investments are expected to support growth, fiscal consolidation measures implemented by the government are likely to slow down government investments and consumption,” the experts say.
“However, there are anticipated risks that could lead to subdued growth in the industry and service sectors, as well as in private investment and consumption. These risks are attributed to the multiplier effects of fiscal consolidation efforts; therefore, the projected economic growth is likely to be 4.8 per cent for 2024.”
The National Treasury revised downwards its growth projections for the economy in 2024 from 5.5 per cent to 5.2 per cent following public ire over the controversial 2024 finance bill and the government’s fiscal consolidation measures seeking to enhance revenues and control the government’s runaway spending.
The economy expanded by 5.6 per cent in 2023 from 4.8 per cent in 2022, but the growth declined to five per cent in the first quarter of 2024 from 5.5 per cent in the same period in the prior year (2023).
It further fell to 4.6 per cent in the second quarter of 2024 from 5.6 per cent in the same period in 2023.
In the third quarter (July-September) the economy grew by four per cent, the slowest growth since the Covid-19 era (2020) as contractions in the construction and mining sectors bogged expansion.
The country’s total output grew at a slower pace compared to six per cent in the third quarter of 2023, according to the Kenya National Bureau of Statistics (KNBS).
The National Treasury hinged its revised growth projection for 2024 to the resilience of the services sector, expected improvement in agricultural production and the State’s investment in the Bottom-Up Economic Transformation Agenda (BETA) agenda such as in the affordable housing programme.
The budget experts, however, say while there are positive developments such as the decline in inflation, stabilisation of the Kenyan shilling, a healthier current account balance and improved performance of Appropriation in Aid (A in A) collection, some challenges such as sluggish growth in the industry and service sectors, and the waning private sector credit growth require policy interventions.
“In addition, there are fiscal challenges due to revenue shortfalls and high recurrent spending consequently, the government will need to carefully manage its debt strategy, enhance revenue collection and optimise expenditure to ensure sustainable economic growth,” they say.
According to the experts, the double-digit interest rates coupled with the upward revision of the government’s domestic borrowing target in the 2024/2025 fiscal year may result in higher expenditure on public debt service as well as crowding out of the private sector.
“The weighted average lending interest rates increased from below 14 per cent in the second half of 2023 to over 16 per cent in the second half of 2024. This has consequently hampered credit access and investment by the private sector,” they say.
“The transmission effect of the rise in interest rates poses a risk of declining investments in the various sectors of the economy in the private sector, however, if the Central Bank continues to pursue gradual monetary policy easing, the cost of borrowing may decline making credit more accessible.”
Private sector credit was on general decline last year with the loan book closing October at Sh4.088 trillion compared with Sh4.222 trillion at the beginning of the year, marking a Sh134.3 billion decline as private sector credit growth hit a 22-year low of0.5 per cent, according to CBK data.
The PBO’s quarterly economic bulletin provides a brief of key recent economic and budget developments for the year 2024 including the macroeconomic and fiscal indicators as of the first quarter of the 2024/2025 fiscal year.
Kenyan businesses and households are struggling with increased taxes and statutory levies that have eroded their disposable incomes and reduced spending on goods and services even as inflation for November and December hovered at levels last seen 17 years ago.
The World Bank projects Kenya’s real GDP in 2024 to grow by 4.7 per cent compared to 5.6 per cent in 2023 when agriculture recovered from drought.
Kenya majorly exports horticulture, tea and coffee but the quantities declined in the second quarter (April-June) of 2024 compared to the same period the prior year.
According to the PBO the quantity of horticulture exports declined by 58 per cent while that of coffee exports fell by 16 per cent.
The overall decline in horticulture exports was a result of a drop in the quantity of cut flowers and vegetable exports, while fruit exports recorded an improvement in the period.
