Kenya’s economy to contract by 5.1% in 2023 on the ongoing drought; Fitch

By Victor MUJIDU

Kenya’s real economic growth will slow to 5.1 percent in 2023, from 5.4 percent last year, according to the latest estimates by Fitch Solutions.

Consumer and business activity will also weaken as a result of domestic headwinds such as continued drought conditions and fiscal consolidation, as well as slowing global growth which has been occasioned by the war in Ukraine.

Noting that the above mention factors will largely constrain the demand for Kenyan exports and increase risk-off sentiment, exerting downward pressure on the currency which traded yesterday (Tuesday 21^st February) at Sh126.10 against the US dollar.

Depreciating value of the Kenyan shilling against the US dollar will carry on into 2023, according to the rating agency.

“That said, weaker demand for imports will support an improvement in Kenya’s net exports and prevent a sharper slowdown in headline growth,” reads part of the report released last week.

The government’s fiscal consolidation efforts and poor investor sentiment will equally weigh on fixed investment and government consumption.

“We expect the government will continue to pursue its ‘expenditure rationalization’ in the second half of its 2022/2023 fiscal year (FY, running from July to June) budget and in its FY23/24 budget,” continued the report.

In the private sector, the agency expects that weak investor sentiment will continue to weigh on business activity and investment.

Rising recessionary risks in developed markets, Kenya’s weakening shilling (against the US dollar), and low levels of foreign reserves which fell below Kenya’s benchmark of 4.0-months of import cover in November 2022, before rising slightly to 4.2 months in December, propped up by the fourth IMF disbursement – will continue to weigh on investor interest.

According to outturns by the Kenya National Bureau of Statistics (KNBS) on December 30, 2022, growth slowed further in Q322 to 4.7% year-on-year, from 6.7% and 5.2% in Q122 and Q222 respectively.

An outturn report compares the actual expenditure for the year to the approved budget for the year. The outturn report is the fourth budget monitoring report for the financial year.

Data released by the Kenya National Bureau of Statistics (KNBS) on December 30, 2022, indicates that the GDP weakened in Q322 to 4.7 percent y-o-y, from 6.7 percent and 5.2 percent in Q122 and Q222, respectively.

Accommodation and food services recorded a robust growth of 22.9 percent y-o-y in Q322, with the agriculture, forestry, fishing sector, mining, and quarrying sector recording the remaining percent.

“Our weaker 2023 economic growth forecast reflects our expectations of moderating consumer and business activity as a result of domestic headwinds due to continued drought conditions and fiscal consolidation, as well as slowing global growth, which will constrain demand for Kenyan exports and increase risk-off sentiment, exerting downward pressure on the currency,” the KNBS data showed.