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House budget office faults Treasury growth forecasts

Parliament’s budget think tank has poked holes into the Treasury’s growth projections, citing erratic weather patterns and election-linked inflationary pressure.

The Parliamentary Budget Office (PBO) says the economy is unlikely to grow by six per cent this year due to erratic weather and oil price spikes.

The think tank has also ruled out higher growth rates of 6.2 per cent in 2017/18 as well as 6.5 per cent and 6.6 per cent projected for 2018/19 and 2019/20 respectively.

A key assumption for 2016 and 2017, the PBO notes, is that agriculture which accounts for 23 per cent of the gross domestic product will continue to power growth in the next five years.

“This assumption is flawed given that with climate change, the weather patterns have changed over time and therefore their impact tend to be unpredictable,” the team says in an analysis submitted to Parliament and Senate last week.

The team adds: “Achievement of 6.0 per cent in 2016 may not be feasible. The last two quarters of the year have faced challenging environment including poor weather conditions, increase in fuel prices and reduced credit to the private sector. This will definitely impact on the growth projection for subsequent years.” 

The economy has so far recorded improved growth of 5.9 per cent in the first quarter and 6.2 per cent in the second quarter driven mainly by agriculture and low oil prices.

READ: Kenyan economy to grow amid headwinds

In the Budget Policy Paper, the Treasury sees ongoing investment in infrastructure, domestic demand, agriculture and recovery of tourism supporting growth in the near term.

It also flags off exports in the regional market and improved productivity in the private sector due to implementation of structural reforms as possible growth drivers.

The team notes that while Vision 2030 highlights manufacturing as the driver of the economy into middle income status, the Treasury’s medium term outlook does not mention the sector at all.

“The lower growth of the manufacturing sector in the first two quarters of 2016 raises concerns on whether the government is putting in policies to support it,” the team notes.

The think tank also questions the Treasury’s assumption that ongoing investment in infrastructure will support growth in the medium term “since benefits of some of the projects may not have an immediate impact on the economy in terms of multiplier effects that result in job creation and poverty alleviation”.

The only major project that is scheduled for completion in 2017 is the standard gauge railway. The team says: “Given that 2017/18 will be an election year, there is likely to be no major improvements in private investments as most of the investors often adopt a ‘wait-and-see’ attitude but it is likely to improve over the medium term if the country holds peaceful elections.”

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