Treasury sees 6.9pc growth as pay demand threatens gains

Politics and policy

Pedestrians walk past the National Treasury building in Nairobi. Kenya expects the economy to expand by 6.9 per cent this year, up from an initial growth forecast of 6.5 per cent. PHOTO | FILE 

By BD REPORTER AND REUTERS

In Summary

• These growth figures are higher than those of the World Bank, which said Kenya would grow at six per cent this year, up from 5.4 per cent last year.
• The Treasury warns that insecurity, poor weather and slowing global economy pose risks to Kenya’s growth this year.

The Treasury expects the economy to expand by 6.9 per cent this year, up from an initial growth forecast of 6.5 per cent, but is warning that the push for higher wages and insecurity could curb the growth target.

The Treasury said the economy likely expanded by 5.3 per cent last year, but growth could be more robust this year, thanks to momentum picking up in a range of sectors like farming, real estate and financial services.

“The growth outlook is promising due to continued implementation of bold economic policies,” the Treasury said a budget policy document released Wednesday.

These growth figures are higher than those of the World Bank, which said Kenya would grow at six per cent this year, up from 5.4 per cent last year.

Analysts said Kenya has struggled to attain its true growth potential of above six per cent in recent years, due to a host of challenges including political uncertainties, periodic droughts and frequent attacks blamed on Islamists.

The Treasury warns that insecurity, poor weather and slowing global economy pose risks to Kenya’s growth this year.

“Public expenditure pressures, especially recurrent expenditures, pose a fiscal risk. Wage pressures and the inefficiencies in devolved services may limit continued funding for development expenditure,” said the Treasury.

“The impact of insecurity on tourism and depressed rainfall which could affect exports and agricultural production respectively remains a risk to the growth outlook.”

Lecturers, teachers and doctors were given pay increases in recent months, with the tutors currently pushing for pay raise of at least 150 per cent.

READ: Teachers want court to more than double pay

A string of deadly terror attacks in Mombasa, Lamu and northern Kenya saw the tourism sector contract 14.6 per cent in quarter three following travel alerts by the West.

Inflation has been stable in recent months, staying inside the government’s preferred band of 2.5-7.5 per cent, while average commercial lending rates fell by a percentage point to 16 per cent last October.