Bloomberg News

World Bank Cuts Kenya Economic Growth Estimate on Drought

June 02, 2011

(Updates with World Bank comment starting in second paragraph.)

June 2 (Bloomberg) -- The World Bank cut its estimate for economic growth this year in Kenya, East Africa’s biggest economy, to 4.8 percent due to the effect of dry weather on agricultural output and uncertainty ahead of general elections.

The Washington-based lender reduced its forecast from the 5.3 percent estimated in December, Johannes Zutt, the institution’s country director, told reporters today in the capital, Nairobi. The economy will probably expand 5 percent next year, he said. It grew 5.6 percent in 2010.

“In 2011, Kenya will need to navigate through another economic storm,” the World Bank said in a report distributed today at the same event. “This will reduce growth to a projected 4.8 percent, which is still substantially higher than the average of the last decade.”

Poor rainfall during the long rainy season from March through May, which is a vital period for farming, has damaged crops in an economy that derives almost a quarter of its gross domestic product from agriculture. Kenya is the world’s largest black-tea exporter and it grows high-quality coffee beans.

Planned investment may fall before presidential and parliamentary elections in 2012 because of concerns about a repeat of ethnic violence that followed the previous vote in 2007, leaving 1,500 people dead, the bank said. International Criminal Court hearings into the unrest may also undermine confidence, it said.

Hearings at the Hague-based court will start in September to decide whether six Kenyan suspects, including Finance Minister Uhuru Kenyatta and lawmaker William Ruto, will stand trial. All the men deny accusations of crimes against humanity.

Cash Subsidies

The government should continue tightening monetary policy and consider offering cash subsidies to its poorest citizens to help ease pressure from inflation, which accelerated last month to a 25-month high, the World Bank said.

Kenya’s central bank raised the benchmark interest rate on May 31 by a quarter percentage point to 6.25 percent, the second increase this year, to curb price growth. Inflation climbed to 13 percent in May from 12.1 percent a month earlier on rising food and fuel prices, and the rate has stayed above the government’s 5 percent target all year, the Kenya National Bureau of Statistics said on May 31.

The International Monetary Fund reduced Kenya’s growth forecast for this year to between 5 percent and 5.4 percent last month, from a 5.7 percent estimate in April. Efforts by the government to reduce the supply of local currency in the market through selling repurchase agreements should help bring down inflation, Domenico Fanizza, the IMF’s mission chief to the country, said on May 24.

The central bank sold 21.4 billion shillings ($247.3 million) in repos since May 11 and is offering to sell another 500 million shillings today.

--Editors: Gordon Bell, Eddie Buckle

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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