Budget office differs with State on 2015 economic growth projections

The Parliamentary Budget Office (PBO) has dismissed the Government’s projections on this year’s economic growth, becoming the first public body to poke holes in Kenya’s prospects.

The PBO, which advises legislators on budgets, has said in its latest report that the country’s economy will grow by 5.6 per cent, arguing that it is not possible to attain the 7 per cent estimated by the Government on account of a sluggish agricultural sector.

“A GDP growth estimate of 7.0 per cent in 2015 is unlikely to be met due to exogenous shocks, such as inadequate rainfall and the weak outlook of global economy. It is our considered opinion that the economy will grow by 5.6 per cent in 2015, rising to 6.0 per cent in the medium term,” the report notes.

Food shortage

Parliament’s budget experts say despite reported heavy investment in agriculture, the country is yet to make significant strides in achieving food security and is still reliant on rain-fed farming.

“The likelihood of poor rainfall in most parts of the country could, therefore, lead to food shortages, especially in ASAL [arid and semi-arid lands] areas, and high inflation in the course of the year,” the report notes.

In his 2015-16 Budget due to be debated next month, Treasury Cabinet Secretary Henry Rotich told legislators the Government was counting on huge investments in security and a recovery in the agriculture sector to grow the economy by 7 per cent this year.

Mr Rotich also pegged this projection on lower oil prices, reversing the decline in economic growth after a wave of terror attacks hit the tourism sector, and agriculture and manufacturing slowed Kenya’s growth from 5.7 per cent in 2013 to 5.3 per cent last year.

A sluggish economy will make it much harder for the Government to collect revenues to fund the Sh2.1 trillion spending plan set for the next financial year.

Rotich said the Government is hoping to grow its revenues by Sh193.4 billion to Sh1.35 trillion in the next financial year that starts July 1.

But a rise in domestic oil prices is already impacting the cost of living. Government statistics put the average inflation for Kenyan households at 7.55 per cent in April, up from 6.88 per cent the previous month and 6.26 per cent in February. Central Bank of Kenya targets to keep inflation between 2.5 per cent and 7.5 per cent.

Key sectors

“Economic growth in Kenya is expected to accelerate, boosted by lower oil prices and higher public and private investment, and recovery of the agriculture sector,” Rotich said in a report to Parliament.

Agriculture and manufacturing were the key growth sectors driving Kenya’s 5.3 per cent economic performance last year, which means that when they slow down, their impact is widespread.

According to the 2015 Economic Survey, agriculture accounted for 27.3 per cent of the value of goods and services produced in Kenya last year (GDP) — more than two times the manufacturing sector’s contribution.

Efforts to revive the agricultural sector, however, are being frustrated by the depressed rainfall experienced in the first quarter of the year.