Nairobi; Kenya: The International Monetary Fund (IMF) expects the economy to grow by 5.8 per cent this financial year, up from 5 per cent last year, driven by higher domestic and external investment.

“The outlook is favorable,” the fund says in its latest assessment of Kenya’s economy. The IMF position is based on the fact that the government has embarked on large-scale projects such as the construction of the Mombasa-Nairobi railway, geothermal plants, irrigation projects, and new oil pipelines.

“Rising domestic and foreign investment are expected to boost economic activity in the short term,” the fund explains. “A pick-up in private investment explains high credit growth, especially to manufacturing and SMEs.”

According to the fund, drivers of growth underlying baseline projections include, improved business conditions owing to the removal of bottlenecks by rising infrastructure investment in energy and transportation, the expansion of the EAC market thanks to decisive steps towards regional integration and reduced social strife as a result of devolution.

Foreign exchange

“A boost in investor confidence following the successful Eurobond issuance could further improve the outlook,” the report adds. According to the report, inflation remains broadly in check, but rising food prices and rapid credit growth require careful monitoring by the Central Bank. In addition, non-agriculture growth has remained robust, but agriculture has stayed subdued because of poor rains.

The IMF warned that the near-term risks to the Kenyan economy include the potential further deterioration of security conditions, new weather-related shocks following poor rains, and/or additional difficulties in implementing devolution that could complicate public finance management.

The IMF, however, notes that promising commercial prospects of oil discoveries have the potential of providing significant foreign exchange and fiscal resources for Kenya. The report cited commercial estimates that put the country’s oil and gas reserves at levels similar to those of Equatorial Guinea and the Republic of Congo respectively, sub-Saharan Africa’s fourth- and fifth-largest oil producers.

“If these reserves are confirmed, they could bring Kenya’s external current account to surplus soon after exploitation starts,” the report adds.

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