Budget experts have watered down National Treasury’s economic growth projections for the coming financial year, saying it is unlikely to be achieved.
The Parliamentary Budget Office, the body that advises members of Parliament on economic matters, said the growth projections won’t be realized.
The Treasury estimates the economic growth rate of 5.3 per cent in 2025 and 2026.
It premised the same on a favourable weather and implementation of President William Ruto’s legacy plan – Bottom-Up Economic Transformation Agenda.
The Treasury further exuded confidence that the service sector would support growth in 2025 based on reforms in the ICT sector.
It also pointed out that government activities would boost tourism as well as host international conferences.
The Treasury also forecast that the industry sector would boost growth through reduction in production costs and government initiatives to support value addition.
But the experts hold that the growth prospect has been hampered by events including slow implementation of the BETA plan.
“Given the slow implementation of the key BETA priorities, limited fiscal space for public investments, slowdown in private sector activities, and vulnerability of the agriculture sector, this growth projection may not be tenable,” the Martin Masinde-led team said.
“Consequently, PBO projects a more modest economic growth rate of 4.8 per cent for 2025,” the experts said.
PBO argued that the projections are largely pegged on the implementation of government policies, hence heavily dependent on the success of Ruto’s legacy plan.
In backing their argument, the experts held that several sectors have been on a decline recently, including in the agriculture sector, which is being viewed as the backbone of the set targets.
“Notably, weather-related shocks remain a risk to agricultural output,” PBO said, calling for investment in agriculture value chains in the budget.
“This will have multiplier effects on employment generation and export revenue enhancement,” the experts said in their review of the 2025 Budget Policy Statement which MPs are currently considering.=
The experts further hold that the industry sector has declined owing to a decline in construction, electricity, and water supply, as well as manufacturing subsectors.
PBO said the decline in the construction sector may be attributed to the stalled road construction projects following budget cuts which affected development expenditure.
They argued that despite a drop in fuel prices, manufacturers still faced challenges stemming from existing tax policies, which may have offset the benefits netted from reduced energy costs.
The experts further observed that the accommodation and food services also significantly declined, as well as finance and insurance, information and communication, and real estate.
Kenya’s economy took a beating in the wake of civil unrest following the Gen Z protests and the budget cuts President Ruto instigated after the Finance Bill, 2024, failed.
Although government investments were expected to support growth, fiscal consolidation measures arguably slowed down government investments and consumption.
The events escalated anticipated risks which were feared would subdue growth in the industry and service sectors, as well as in private investment.
It has also been reasoned that the slowdown in private sector credit growth to key sectors of the economy has also been a factor.
National Treasury, in the 2025 Budget Policy Statement, says it is eyeing a robust service sector and recovery of the manufacturing sector as well as a robust agricultural productivity.
“The outlook will be reinforced by implementation of policies and reforms under the priority sectors of the Bottom-Up Economic Transformation Agenda (BETA) and improvement in aggregate demand,” Treasury said.
The John Mbadi-led ministry has indicated that it would implement “prudent fiscal and monetary policies” with a view of supporting economic activities.
“The projected growth will benefit from the enhanced agricultural productivity and a resilient services sector. Agriculture productivity is expected to be largely driven by favourable weather conditions and productivity-enhancing government interventions,” Treasury said.
It remains to be seen if the projections would play out as envisioned even as it emerged that the past two years haven’t been easy for the economy.
PBO further reveals that the country’s overall real-time growth dropped by one per cent due to the civil unrest that affected business activities.
Challenges like declining exports, especially for agricultural products such as coffee and horticultural crops, are said to pose further risk to the economy.
The revised borrowing target for 2024-25 is also viewed as resulting in higher expenditure on public debt service, as well as crowding out the private sector.
INSTANT ANALYSIS
According to PBO, recent economic developments indicate that domestic growth decelerated from an average of 5.7 percent in the first three quarters of 2023 to 4.5 per cent in 2024. Growth in the primary sector declined from 5.7 per cent to 4.2 per cent on account of a decline in mining and quarrying activities. In addition, there was a modest decline in agriculture. Notably, in the primary sector, agricultural production for export recorded an improvement, particularly in the exportation of coffee by 29 per cent and tea by 7 percent; however, horticulture exports declined by 19 percent. Cane deliveries improved by 189 per cent on account of favourable government policies targeting sugar production.
