Parliament warns over risks to the projected economic growth
By Mercy Mwai, December 19, 2024
The country’s projected economic growth risks not being achieved due to uncertainties in both global and domestic markets, a new report says.
The report by the Parliamentary Budget Office (PBO) has raised concerns that although the National Treasury projects moderate growth in Kenya’s economy over the medium term of 5.2 per cent in 2024 and 5.4 per cent in 2025, this will largely be driven by the recovery in the agriculture sector and the continued resilience of the service sector.
The growth in the agriculture sector, the report says, is based on above-average rainfall expected in most parts of the country in 2024 and continued implementation of the Bottom-up Economic Transformation Agenda (BETA) value chains. On the other hand, the projected growth in the services sector is anchored in ICT reforms, boosting growth in financial services, healthcare and public administration.
“However, the country’s fiscal outlook for FY 2024/25 reflects both ambition and caution. With the loss of the Finance Bill 2024 and implementation of a fiscal consolidation plan, the government seeks to enhance revenue collection, rationalize expenditure, and manage rising debt obligations,” the report reads, noting that the escalation of geopolitical tensions due to various regional conflicts that may impact global supply chains could negatively affect the current account deficit and slow potential growth.
It further raises concerns that ongoing fiscal consolidation measures may constrain economic growth, especially if government measures to implement Public Private Partnerships (PPPs) and revenue enhancement measures are derailed or slowed down while adverse weather conditions, such as projected La Niña events, may negatively affect agricultural production.
“The recent downgrade of Kenya by international rating agencies is likely to increase the borrowing costs for both domestic and external debt thus reducing public consumption and investment due to constrained fiscal space and negatively affecting private consumption and investment due to the crowding out effect,” the report adds.