Business Daily (Nairobi)
Ole Turana
27 August 2007
Nairobi — Various leading voices continue to give a thumb up sign for the economy with all indications pointing to an even better time ahead, despite the political risks that comes with General Elections.
The latest report from the Economist Intelligent Unit (EIU), a member of the Economist Group which publishes the Economist has joined in by predicting that the country economy will grow by more than 6.1 per cent.
Mr Joseph Kinyua, permanent secretary at the Ministry of Finance on Wednesday said that the economy had grown by 6.3 per cent and he expects an even better outlook.
This sunny view is shared far and wide among analysts. These prediction comes hot on the heel of similar ones by two locally based fund management firms, Old Mutual Asset Managers and AIG Global Investment where they predicted the economy will grow by 6.2 per cent and 6.5 per cent respectively.
The three predictions are based on continuing implementation of prudent macroeconomic policies of fiscal and monetary polices and the expansion of the economy.
Under the Poverty Reduction and Growth Facility (PRGF) the government has focused on spending more resources on developmental expenditure vote of the budget away from the recurrent expenditure.
The recovery efforts have been cross cutting with all major economic sectors realising positive growth in the last four years.
While presenting the Budget for 2007/08 Minister of Finance Amos Kimunya indicated that leading economic indicators show a robust growth which has pulled the gross domestic product growth from negative territories in 2002 to 6.1 per cent by the end of 2006.
Indeed, in the budget for the current fiscal year, the government raised development vote by 30 per cent from 17 per cent.
"The fiscal year 2007/08 will comprise of Sh492 billion as recurrent expenditure and Sh201 billion for development expenditure," said Mr Kimunya during the budget presentation.
The deliberate allocation of more funds to development will be to meet huge infrastructural spending estimated at Sh114 billion.
However, the government continues to grapple with the challenge of fund utilisation with key line ministries such as Roads and Public Works, Water unable to spend their allocation hence styming expected benefits to the whole economy.
"Growth in 2007 will benefit from ongoing investment in weak infrastructure, although not all projects will be undertaken or completed on time and serious constrains will remain particularly in the road network", says EIU report.
The government will run a budget deficit Sh110 billion of which expected donor funding tied to specific project will amount to Sh40 billion while the balance of Sh70 billion will be covered through Sh36 billion from privatisation proceeds and Sh3 billion from domestic borrowing.
Analysts have observed that the increased domestic borrowing is unlikely to lead to inflationary pressure as the market is liquid enough to allow government borrowing.
"The downward shift in interest rates have damped the possibility of inflation picking up as general prices remain within the expected range", said Edward Gitahi Head of Research at AIG Global.
EIU states that the "monetary policy remain geared towards keeping underlying inflation, which excludes food and energy prices, below the official target of 5 per cent."
The latest Monthly Economic Review by the Central Bank of Kenya puts underlying inflation at 5.2 per cent. Underlying inflation is preferred as a general measure of market price as it excludes food and energy, which are affected by the cyclic swings associated with uncontrollable climate conditions and international prices of oil.
As the General Election nears, the economy has kept the tempo with little indication of its sputtering to give way to the heightened political climate. Recent business indicator report shows that the business community has learned to move on and ignore politics.
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