World Bank warns sub-Saharan Africa may not meet growth projections

Kenya: The World Bank has revised its improved growth projections for 2014, saying Sub Saharan Africa is unlikely to meet the earlier projected growth. The new projections are due to domestic constraints and a tightening global environment.

Sub-Saharan Africa registered a 4.7 per cent growth in 2013, up from 3.7 per cent in 2012. This is largely supported by investment in the resource sectors and public infrastructure, 2014 offers a different forecast.

The bank’s latest Global Economic Prospects Report stated that developing countries are headed for a third consecutive year of disappointing growth – below five per cent. This is because first quarter weakness this year has delayed an expected pick-up in economic activity.

Account deficits

National Treasury forecasts indicate Kenya’s economic growth will accelerate to about 5.7 per cent compared to the 4.7 per cent registered in 2013. Projections are that the economy picks momentum to hit a growth of 6.1 per cent by next year. “Fiscal and current account deficits have widened across the region,” the institution stated last week.

With increased external and domestic borrowing, Kenya’s ballooning debt has been on the spotlight. With a Sh1.77 trillion budget, the Government is exploring ways to bridge the 2014/2015 financial requirements and borrowing appears the only option, raising sustainability of the debt concerns. Huge increase in public wages might deteriorate fiscal balances in many countries, and among other factors that could erode the projected growth in Kenya according to IMF.

Teachers and health personnel have in the past taken to the streets demanding for wage hike. Besides, counties have embarked on a personnel recruitment exercise with more resources going to recurrent expenditure instead of the development expenditure.

Bigger effect will be felt when the US begins to taper its asset purchase program this year as short-term measure. Capital inflows to sub-Saharan Africa declined significantly, suggesting changing investor sentiment toward the region.

 “A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis. Now is the time to prepare for the next crisis,” said World Bank’s Senior Vice President and Chief Economist Kaushik Basu. Tourism has also come under threats following increased terror attacks.