Kenya's Finance Minister Robinson Githae maintained the country's 2012 economic growth forecast at 5.2 percent in his budget speech on Thursday, raising allocations to roads, power and railways in order to support the economy.
The east African nation faces risks from the global economy due to continued problems in the euro area, inflation that is in double digits, lingering weakness in its currency and security challenges from neighbouring Somalia.
“The economic prospects for 2012 are favourable, but risks remain. Real GDP is expected to grow by 5.2 percent in 2012. Over the medium term, growth is expected to pick up to about 6.0 percent,” Githae told parliament.
Growth would be driven by expansion in agriculture, tourism, construction, transport and communications, as well as the information and communication technology sectors, Githae said.
The economy grew by 4.4 percent last year, down from 5.8 percent in the previous year, according to official data.
The minister, who was appointed to the post in March this year, said he expected inflation, which has fallen for the last six months in a row, to continue on that trajectory, lowering pressure on commercial interest rates.
The Treasury plans to lower the Central Bank of Kenya's (CBK) inflation target to 5 percent from a medium-term target of 9 percent, set last year when prices soared.
“I will be shortly be writing to the CBK's Monetary Policy Committee to pursue the proposed inflation target of 5 percent with an upper bound of 7 percent by end of June 2013,” Githae said.
During the national budget presentation for the 2012/13 (July-June) fiscal year, the minister increased funds for roads and energy projects by just over 30 billion shillings, to facilitate economic activities.
Githae set the budget deficit for the year at 250.3 billion shillings, 6.5 percent of GDP, planning to cover it by borrowing 106.7 billion shillings from the local market and the rest through loans from multilateral and bilateral creditors.
Analysts said the projected gap could deepen.
“We think the government's projection of a 20 percent increase in spending and its 5.2 percent growth forecast are overly optimistic, and thus suggests that the budget deficit is likely to come in wider than projected,” said Yvonne Mhango, economist for Sub Saharan Africa at Renaissance Capital. - Reuters