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Treasury sees GDP growth picking up, current account a concern

26 November 2013, 09:11 Duncan Miriri

Nairobi - Economic growth in Kenya will accelerate this year and in 2014, but a stubborn, gaping current account deficit poses a threat to sustained robust growth, the Treasury said on Monday.

East Africa's biggest economy will expand an estimated 5.6 percent this year, a percentage point above last year's rate, before quickening to 6.1 percent in 2014 helped by good weather and strong economic growth in the region, the Treasury said.

Output has picked up in Kenya, east Africa's biggest economy, after March's presidential election passed off smoothly, allaying fears of a repeat of the deadly clashes that followed a disputed vote in 2007.

In its latest Budget Outlook Paper, the Ministry of Finance said the projected growth reflected, "continued normal weather and strong growth in the sub-region."

Rain-dependent agriculture accounts for nearly a quarter of the Kenyan economy, while good economic growth rates in neighbouring countries like Uganda help to boost exports.

The ministry said the main risks to growth were the sluggish performance of developed economies that are key export markets for Kenyan goods and services, increased government expenditure demands at home, and a big current account deficit.

"Kenya's large and persistent current account deficit of over 10 percent of GDP in the last three years raises a major concern for sustained economic growth," it said.

In the budget outlook paper, the Treasury predicted a budget deficit for fiscal 2014-15 beginning next July of 277.9 billion shillings or 5.8 percent of GDP, narrower than this fiscal year's deficit of 7.9 percent.

Some 177.2 billion shillings, or 3.7 percent of GDP, will be financed from local borrowing while the balance will be covered by net foreign financing, the ministry said.

Inflation is seen stabilising around the medium term target of 5 percent, the document said. Kenya's year-on-year rate of inflation slowed to 7.76 percent last month from 8.29 percent in September, when a new sales tax kicked in.

Declining prices of oil are expected to ease pressure on the current account deficit, helping it shrink to 7.0 percent of GDP in the medium term from 10.5 percent this fiscal year, the Treasury said.

- Reuters


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