World Bank sees Kenyas 2021 growth at 4.5 per cent

The World Bank projects Kenya’s growth to bounce back to a rate of 4.5 per cent this year after plunging into negative territory in 2020.

The new projection is contained in a new report tied to the recent Ksh.80.9 billion ($750 million) financing to the country announced on Friday.

World Bank attributes the expected turnaround to the roll out of COVID-19 vaccines which have partly normalized economic activities to pre-pandemic levels.

“The base case projection factors in that COVID-19 vaccination has begun in Kenya, contributing progressively to a normalization in economic activity. The base case also assumes that normal weather supports agricultural production,” notes the report.

“On the domestic front, a final key assumption underpinning the base case is that the government resumes fiscal consolidation in the upcoming 2021/22 fiscal year, mitigating the risk of crowding out and opening more space for private credit extension and supporting investor confidence and growth. On the external front, global economic recovery is expected to lift the demand for Kenya’s merchandise exports in 2021, but a fuller recovery in services exports (mainly tourism) is expected only in 2022 and beyond.”

Further, the World Bank expects Kenya’s current account deficit to widen on the rebounding of domestic demand which is set to fuel imports as firms increase input purchases.

The current account is projected to widen to 5.5 per cent this year from a narrowed 4.8 per cent at the close of 2020.

Debt exposures

The World Bank warns Kenya faces a high risk of debt distress as it hopes for a return to fiscal consolidation by the government to smooth the debt vulnerabilities over the medium term.

According to the World Bank and the International Monetary Fund (IMF) debt sustainability analysis (DSA) published in April 2021, Kenya will be in significant breaches of key debt metrics in the run up to the redemption of a Ksh.215.6 billion ($2 billion) Eurobond in 2024.

Nevertheless, the World Bank does not see a critical refinancing risk even as it hopes to see the implementation of sound debt management operations to cool off the debt concerns.

The World Bank meanwhile expects Kenya to leverage the extended debt service suspension initiative (DSSI) to December this year as part of interventions to free fiscal space.

So far Kenya has saved an estimated Ksh.68.9 billion ($639 million) from its participation in the DSSI between January and June 2021.

The World Bank projects savings of up to Ksh.107.8 billion ($1 billion) by Kenya, if it takes up the offer for a further deferment of external debt obligations.

The World Bank projects 2020 growth at -0.3 per cent. The Kenya National Bureau of Statistics (KNBS) is yet to publish the 2021 Economic Survey outlining the country’s GDP metrics through last year

$1=Ksh.107.8