The slowdown has been attributed to the long term drought witnessed in the country from mid-2016 since the Kenyan economy is agriculturally driven. Failed rains have resulted in crop failure and loss of numerous herds of livestock leading to food insecurity.
Reduced lending to the private sector occasioned by the cap on interest rates introduced by the government in September 2016, currently at 4.3 per cent compared to a ten year average of 19 percent, has affected household expenditure and private investment further dampening economic growth.
Additionally, poll related uncertainties have further lowered prospects of economic growth as the country prepares for a general election slated for august.
“While Kenya’s growth has been robust in the recent years, it falls short of the levels envisaged in the in the Medium Term Plan II and what is required to transform Kenya into an upper middle economy by 2030,” the World Bank said in its bi-annual update of the economy.
External shocks such as a strong US dollar have made the shilling weak making imports more expensive. Considering the country imports more than it exports, the strong dollar further dampens economic growth, with CBK projecting a rise in the current account deficit from the 5.5 per cent in 2016 to more than six per cent in 2017.
The largest imported commodity in the country is oil and the upsurge in global oil prices compared to the low prices witnessed in 2016 has had a negative effect on economic growth.
The World Bank’s projections are marginally higher than those of the International Monetary Fund (IMF), which in April slashed Kenya’s growth forecast to 5.3 per cent on drought, slow credit growth and rising oil prices.
IMF had earlier predicted the country’s GDP growth rate will slow in 2017 but within the 5 to under 6 per cent range from nearly 6 per cent last year over the August 8 polls.
However, growth is expected to rebound to 5.8 per cent in 2018 and continue on an upward trajectory to 6.1 per cent in 2019 subject to favourable conditions such as sufficient rainfall, robust growth among Kenya’s trading partners and a strong shilling against major currencies.