Legislation reform can elevate Kenya’s economic growth, says report

A new World Bank report urges Kenya to reform legislation governing the digital economy in order to keep pace with the digital evolution.

Kenya continues to experience steady economic growth, with real GDP expanding on average by 5.6% over the last five years (2014-2018).

In 2019, however, economic activity has softened to 5.8% from 6.3% in 2018 according to the latest World Bank Kenya Economic Update.

The moderation in growth is attributed to a slowdown in agricultural output and weak private sector investment. The medium-term growth outlook remains positive with a projected growth of 5.9%.

The report notes that Kenya’s overall macroeconomic environment is expected to remain stable with low inflation and a manageable current account deficit, which should be supportive of the inclusive growth agenda of the government.

Headline inflation is within the government target range of 52.5%, while current account deficit has narrowed significantly due to lower imports, diaspora remittance inflows and improved tourism revenues.

Nonetheless, interest rate caps have constrained the operating environment for the banking sector and reduced flexibility for monetary policy to support growth, if needed.

The repeal of interest rate caps (if approved) is a welcome development that should eliminate what has been a powerful disincentive for banks to lend to SMEs and restore the potency of monetary policy.