NAIROBI, Kenya, Sept. 20 (Reuters) – Kenya‘s GDP growth is expected to slow to 5.7 percent in 2022 on the back of a broader global economic slowdown, heightened uncertainty surrounding August elections and tighter fiscal policies, according to Deloitte.
This is 1.2 percentage points less than the country’s GDP growth of 7.5 percent in 2021, which was 1.2 percent above the accounting firm’s forecast.
In its East Africa macroeconomic publication, Volume III, entitled “Resilience Through Tough Times”, Deloitte also forecasts that Kenya’s debt-to-GDP ratio will reach 72.0 percent in 2022 due to the contraction in government revenues.
The country’s debt ratio was 70.0 percent in 2021.
Additionally, the Company expects the Kenyan Shilling to weaken further to 119.9 units against the United States Dollar (USD) by the end of 2022, fueled by elevated global oil prices due to global inflation and uncertainty surrounding the August elections will be further tightened.
“The shilling weakened against the US dollar (USD) to an average of 109.6 KES/USD in 2021, reflecting a larger current account deficit. In June 2022, the shilling was trading at KES 117.3/USD and is expected to weaken further,” Deloitte said.
The shilling hit an all-time low against the dollar on Tuesday, signaling inflation and higher costs for imported goods.
Data from the Central Bank of Kenya (CBK) showed that the Kenyan shilling traded at an average of 120.45 to the dollar on Tuesday.
The country’s balance sheet deficit is expected to widen further to 5.8 percent in 2022 due to fiscal pressure ahead of the August elections and increased debt service payments.
Kenya’s current account deficit widened slightly to 5.4 percent of GDP in 2021, official data shows.
On the positive side, foreign direct investment (FDI) inflows are forecast to rise 81.4 percent in 2022 to reach USD 1.3 billion (Shsh 156.6 billion), driven by rising investments from private equity firms , multilateral institutions and bilateral investment bodies.
FDI inflows to Kenya fell 60.0 per cent, from US$716.8 million (Shh86.3 billion) in 2020 to US$448.1 million (Shh54 billion) in 2021.
For East Africa, GDP growth prospects are expected to weaken to 5.3 percent in 2022 from 6.4 percent in 2021 due to rising global commodity prices combined with supply chain shocks.
“We believe growth will be further impacted by downside risks stemming from political uncertainty, local currency depreciation and lower agricultural yields leading to a higher inflationary environment,” said Tewodros Sisay, Corporate Finance and Economic Advisory Lead, Deloitte East Africa.