18 June 2012

Kenya Walking a Tightrope, Says WB

Kenya's current account deficit is approaching dangerous levels, according to the latest World Bank report on the county's economy. The report titled "Walking a tightrope; re-balancing Kenya's economy with a special focus on regional integration states that Kenya is living beyond its means, with imports far outweighing exports at an alarming level.

Kenya reported a current account deficit of 13.1 percent of Gross Domestic Product, one of the highest in world, leaving the country vulnerable to volatile inflation and external shocks as witnessed in shilling slump due to high oil prices import bill. Historically, from 1980 until 2011, Kenya current account to GDP averaged -3.1800 per cent reaching an all time high of 2.2000 Percent in December of 2002.

According to the report, Kenya's economy is driven by unsustainable consumption manifested in rapid growth of retail, all considered risky grounds if not supported by commensurate growth in manufacturing sector. The World Bank forecasts that Kenya's economy will at best grow at 5.4 per cent this year, but remains vulnerable to domestic and global shocks that may reduce growth to 4.1 per cent. "Structural weaknesses, including widening of current account deficit, pose a significant risk to Kenya's economic stability. Another oil price shock, poor harvest, or contagion in the Euro zone could easily create renewed economic turbulence and reverse the recent gains," said Jane Kiringai, the bank's senior economist for Kenya.

The survey indicates that the manufacturing sector has stagnated for a number of years, consequently slowing down generation of job opportunities. It recommends that Kenya redirects its energy towards the manufacturing sector for production of export goods into the East African region and eliminate all non tariff barriers to facilitate smooth trade.

Kiringai, the lead author of the report said Kenya is the worst performer economically in the East African Community, the second fastest growing trade block on the globe, yet it has the potential to lead.

She said that although Kenya is seen to support the East African community common markets agenda, it holds the record for the highest number of non tariff barriers, including bottlenecks at the port of Mombasa, unnecessary weigh bridges and excessive roadblocks on the northern corridor, all contributing to high cost of business. "Deepening Kenya's intra-EAC trade would help reduce its widening current account deficit, cushion it against global turbulence and open the economy to more Foreign Direct Investment," says Wolfgang Fengler, the Lead Economist for Kenya.

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