NAIROBI, Dec 7 (Reuters) - The World Bank has cut its 2017 growth estimate for Kenya’s economy to 4.9 percent, which would be the slowest annual expansion in five years, due to drought, sluggish credit growth and a prolonged election season, it said on Thursday.
The lender had already cut its initial forecast by half a percentage point in April, to 5.5 percent, citing the severe drought in the first half and the drop in private sector growth.
The Kenyan economy has since been buffeted by political risks after the Supreme Court nullified an Aug. 8 election and ordered a re-run that was boycotted by the opposition.
“Private sector activity weakened over the first three quarters of 2017 on account of the election induced wait-and-see attitude,” the World Bank said in its report on the economy.
The drought drove up inflation and cut consumer demand. The main Purchasing Managers’ index for manufacturing and services plunged to a new low in October due to the political uncertainty.
President Uhuru Kenyatta was sworn in for a second five-year term but main opposition leader Raila Odinga has said he will hold a parallel “swearing-in” ceremony next week.
Growth is expected to rebound to 5.5 percent in 2018 and 5.9 percent in 2019, the World Bank said, provided the government implements policy remedies like the removal of a cap on commercial lending rates.
Private sector credit growth slipped to 1.6 percent in the year to August, its lowest level in over a decade.
“Removing the interest rate cap can help jump-start domestic credit to the private sector,” the bank said in the report.
The government also needed to boost revenue collection in order to cut its budget deficit. “Safeguarding macroeconomic stability — a foundation for robust growth — will require fiscal consolidation,” the World Bank said.
It said Kenya, whose budget deficit climbed to 9 percent in the year to the end of June, can cut recurrent expenditure to reduce pressure on public finances.
The East African nation issued its debut Eurobonds in 2014 and has asked banks for proposals for more dollar bonds to be issued in the first quarter of next year.
Economists say although Kenya’s recent annual growth rates of 5-6 percent are respectable, it needs to increase them to the upper single digits on a sustained basis to have a meaningful impact on job creation and poverty reduction.
Editing by Catherine Evans