Kenya: World Bank Urges Govt to Focus on Competitiveness, Inclusivity to Drive Growth

Nairobi — The remodeling of Kenya’s growth model to boost productivity and job creation will require interventions that focus on competitiveness and inclusivity, the World bank has said.

According to the multilateral lender, Kenya’s recent growth which resulted from consumption and government spending has narrowed the country’s fiscal space, increased debt vulnerabilities and has not generated the necessary jobs.

“As such, Kenya must transition to a growth model that boosts performance in under-performing drivers: private investment, exports, and productivity growth, which are all important for enhancing long-run potential GDP and ramping up creation of better-quality jobs for new labor market entrants,” World bank said.

In doing so, the country will require reforms at the macroeconomic level such as fiscal, trade, and investment reforms as well as microeconomic interventions such as contestability of markets to help ensure that growth is inclusive, not subject to elite capture and that the benefits extend to marginalized groups.

World bank said that at the macroeconomic level, Kenya should persevere with fiscal consolidation to avert macroeconomic instability and strengthen the climate for private investment.

“Maintaining Kenya’s multi-year fiscal consolidation effort with step changes in debt transparency, fiscal sustainability and public expenditure efficiency will be essential while continuing to implement reforms under the Sustainable Development Finance Policy,” it said.

Further, the lender noted that global economic headwinds and increasing climate variability also highlight the need to gradually rebuild fiscal buffers and establish more robust risk financing mechanisms.

In addition to broadening its tax base, the government was tasked to ensure that revenue mobilization efforts focus on closing leakages and integrating tax collection systems across national and local governments.

Continued implementation of Kenya’s new debt management strategy – which has already yielded a 7.5 per cent reduction in the share of expensive commercial debt since 2019 – should help to reduce crowding out of the private sector in financial markets and help raise Kenya’s stock of private sector credit to GDP from 25.2 per cent toward the lower middle income countries average of 46 percent.

In October, the World Bank downgraded Kenya’s 2023 growth outlook to 5 per cent amid concerns over increased commodity prices including fuel and the effects of an ongoing drought.

The Bank had earlier projected the country’s growth at 5.5 percent but the prospects have been dampened by high inflation rates and food insecurity that has hit the Horn of Africa.

The bank said noted the slowdown in economic activity reflects weak private consumption associated with a contractionary monetary policy on the back of high inflation.

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