Kenya’s economy is expected to expand this year as activity resumes following Covid-19 lockdowns, boosting tax revenue and government spending.

East Africa’s largest economy is projected to grow by 6.4% this year and slow to 5.5% in 2022, with scheduled elections seen dampening activity, Treasury said in a report on its website. The economy is estimated to have expanded 0.6% last year.

“There has been an improvement in economic activity in the third and fourth quarters of 2020, albeit at a slow pace, following the reopening of the economic, but pickup is weak,” according to the Treasury’s budget policy statement. The economy contracted by 5.7% in the second quarter of 2020, after growing 4.9% in the previous three months.

Other Highlights:

The finance ministry expects government spending to rise by 3.2% to 2.968 trillion shillings ($27 billion) in the fiscal year starting in July.

The fiscal deficit is seen at 7.5% of GDP, narrowing from an estimated 9% in the current fiscal year.

The financing gap in the coming year will be plugged by net external financing of 345.5 billion shillings, or 2.8% of GDP, and net domestic borrowing of 592.2 billion shillings, equivalent to 4.7% GDP.
While the economic shock from the Covid-19 pandemic has worsened Kenya’s debt indicators, the government is optimistic that the economy will recover and the debt position will improve.

“Kenya faces a fiscal risk as the shilling continues to depreciate due to the fact that 51% of the debt is held in external currencies. This has led to an increase in debt service budget in local currency and also an increase on the stock of debt without inflows.”

Lending to the private sector grew by 8.1% in the 12 months to November, it said.

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