NAIROBI - Kenya's
economic growth will speed up to 5 percent or more in 2012 if rains
vital to the key farm sector do not fail and other shocks do not
materialise, a senior Treasury official said on Tuesday.
He also said high market interest rates should fall in the next
six months as the government reduces borrowing on local markets with the
help of a foreign loan.
Politics, drought, economic challenges and high commodity prices
have kept growth in east Africa's largest economy below its long-term
potential of 6 percent per annum in recent years.
"We expect to see 5 percent plus growth. This is dependent on
rains. Other sectors are still strong. The investments that we are
making in infrastructure have a huge impact on growth," Geoffrey Mwau,
economic secretary at the Treasury told Reuters.
"The other economies around us are also growing at about 6
percent, meaning that our exports which go there are not likely to
suffer much."
Mwau, the Treasury's second highest official confirmed revised
projections for 2011 growth at 4.5 percent -from an initial 5.1 percent
projection- following disappointing third quarter growth numbers.
Kenya's military incursion into Somalia against the al Shabaab
rebels and increasingly unpredictable weather patterns posed the biggest
threats to growth this year, Mwau said.
The shilling lurched from one record low against the dollar to
another last year as inflation surged, driving up import costs like oil
and stoking widespread anger.
After months of dithering that earned policymakers plenty of
criticism, the central bank stepped up to the plate in October, raising
the policy rate aggressively to 18 percent in a series of hikes over
three meetings.
While the move to raise rates dampened inflationary expectations
and helped the currency regain most of its losses against the dollar, it
prompted concerns over the risk of loan defaults and potential impact
to economic growth.
Mwau said the government expected rates to start falling in the
next six months after it substituted nearly half of its planned
borrowing from the local market with a foreign loan, which is expected
to be finalised soon.
SINGLE DIGIT INFLATION?
"We had planned to borrow 119 billion shillings from the domestic
market. Out of that we are going to borrow about 50 billion from
outside. That will mean there is less pressure in the domestic market,
forcing interest rates to come down," he said.
Last year's rate hikes and improved food supplies after the long
rains season kicks off in March would drive inflation to single digits,
he said, from 18.31 percent in January.
"I expect that by June, if rain does not fail, we will get to single digit levels," Mwau said.
After the shilling rebounded from a record low of 107 against the
dollar in October last year, Mwau said the government's aim was to
manage the exchange rate between 80-85 per dollar, roughly where it has
been so far this year.
"That is a reasonable exchange rate," he said.
On the mind of some investors are the country's first general
elections to be held since a disputed poll in late 2007 sparked
widespread violence.
Mwau said the poll, to be held by March next year at the latest,
was not likely to heighten political risk with most Kenyans determined
to move on from the past violence.
Rather, the main risks to the economy arise out of Kenya's war in
neighbouring Somalia, which has provoked threats of revenge attacks
from Islamist militants, and the weather.
"We have the weather and Somalia. Somalia is a serious one but we
are managing it well with support from the international community,"
said Mwau.
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