NAIROBI, CFC Stanbic Bank, one of Kenya’s leading commerical banks, has projected the country’s economy to grow by 5.7 per cent this year. driven by increased investments in infrastructure projects, information communication technology (ICT) and lower oil prices.
Its regional economist, Jibran Quareshi, says inflation is expected to go up in the next two months because of increased food prices but will ease in the second quarter.
This year will probably prove to be a much better year for the Kenyan economy when compared with 2015. The bank says the Kenyan shilling has been remarkably resilient and a beacon of strength in the region, having weathered the storm better than most other East African currencies.
Qureishi projects the shilling to remain stable this year with fiscal slippage remaining the most notable risk to the outlook.
He notes that the current account deficit might fall to 8.0 per cent of gross domestic product (GDP), aided by the reduction in the oil import bill. However, he says excluding machinery imports related to the Standard Gauge Railway project, the current account deficit is much lower.
Qureishi says infrastructure spending will expose the Kenyan economy to short-term vulnerabilities but will certainly have long-term benefits on the country.
The agricultural sector is projected to experience challenges in the first six months of this year as weather forecasts indicate that a dry spell is likely to follow the El Nino weather phenomenon experienced since late last year.
He says the country’s debt level is sustainable, advising the government to cut down on external borrowing.
Meanwhile private investment bank Kestrel Capital says lower global oil prices can help lower Kenya’s inflation to between 5.0 per cent and 7.5 per cent.
It warns, however, that the 16 per cent valued added tax (VAT) levy on petroleum products and higher foods prices may result in higher than estimated cost-push inflation this year.
The election cycle and private sector growth may also lead to demand inflation.
Kenya’s inflation has been on the rise for the last five months, rising to 8.0 per cent in December 2015, a figure that is above the government’s preferred threshold of 7.5 per cent.
The Kenya National Bureau of statistics attributed the rise in inflation to high food prices over the last few months.