Publication: Kenya Economic Update, October 2018: In Search of Fiscal Space
Loading...
Date
2018-10-01
ISSN
Published
2018-10-01
Author(s)
Editor(s)
Abstract
The Kenyan Economy is on a rebound in 2018. Reflecting improved rains, better business sentiment and easing of political uncertainty, economic activity is rebounding after the slowdown in activity in 2017. According to official statistics, the economy expanded from 4.7 percent in H1 of 2017 to 6.0 percent in H1 of 2018 supported by improved harvest in agriculture, steady recovery in industrial activity, and still robust performance in the services sector. As a result, real GDP growth is projected to reach 5.7 percent in 2018, an upward revision of 0.2 percentage points from the April 2018 Economic Update. Growth in private consumption and investment are driving the rebound. Private consumption picked up in 2018 fueled by rising household incomes from improved agricultural harvests, lower food prices, and strong remittance inflows. A recovery in private sector investment activity is also underway, partly reflected in increased imports of raw materials and chemicals and more positive investor sentiment with the Purchasing Managers’ Index remaining in expansionary territory (above the 50- mark) for H1 2018 at 55.1 points compared to 49.7 points over the same period in 2017. The recovery in private sector activity (consumption and investment) is expected to off-set potential drag in growth due to unwinding of fiscal stimulusat a time when fiscal consolidation is gathering momentum. Net exports continued to weigh on growth owing to faster expansion in imports relative to Kenya’s exports. There are three key policy recommendations from this analysis. First, the government could consider expanding direct cash transfer programs. Cash transfer programs are well-targeted so that a large fraction of the benefits are captured by the poor. These programs could further be expanded in order to increase their poverty-reducing effect. However, this will require enhancing revenue mobilization for the coverage to increase significantly. Second, exemptions granted within Kenya’s VAT regime appear to benefit the poor only marginally. The variation in consumption shares of exempt and zero-rated items across the welfare distribution is small. A review of the VAT law might help remove exemptions and increase revenue that could then be spent in well-targeted and progressive cash transfer programs. However, a more detailed follow-up analysis of exemptions and zero-rates would be necessary to determine item-level incidence. Third and finally, shifting public resources from higher-level health facilities to lower-level facilities is likely to benefit the poor. Conditional on uptake, public health spending on outpatient care is pro-poor while the associated user fees and over the counter purchases are regressive. The results suggest that redirecting spending from higher-level public health facilities to primary care facilities has the potential to benefit the poor and might increase access.
Link to Data Set
Citation
“World Bank Group. 2018. Kenya Economic Update, October 2018: In Search of Fiscal Space. © World Bank. http://hdl.handle.net/10986/30597 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Mongolia Quarterly Economic Update, October 2011(World Bank, Washington, DC, 2011-10)The economic rebound in recent quarters has been stronger than expected and the economy is showing signs of overheating. These signs are show up in rising inflation, especially of those goods and services which are in strong demand, but cannot easily be imported or whose local supply cannot readily be increased to meet the growing demand. Gross Domestic Product (GDP) growth reached 20.8 percent year-on-year (yoy) in Q3, following an outturn of 17.3 percent in Q2. Growth for the year as a whole will likely hit 15 percent, if not more, up from 6.4 percent in 2010, and is being pushed by infrastructure spending as Mongolia develops its vast mineral wealth. Inflation continues its upward trend. The trade deficit is close to record levels (US$ 1.4 bn in September using 12-month rolling sums) driven by a surge in mining-related equipment and fuel imports. Exports are growing strongly too, driven by large coal shipments to China. The 2012 budget continues this fiscal expansion and targets a 74 percent increase in expenditures (mostly on wages and social transfers).Publication South Africa Economic Update : Fiscal Policy and Redistribution in an Unequal Society(Washington, DC, 2014-11)The global economic recovery remains uneven, as growth in the United States is gaining momentum but appears to be at risk of stalling in the Euro Area and Japan. U.S. growth is expected to gain pace over the rest of the year and into 2015 as employment prospects boost real income growth and confidence. Following the Euro Area s exit from recession in 2013, GDP was flat in 2014, and preliminary data for the third quarter suggest slowing growth momentum amid weak domestic demand, ongoing balance sheet adjustments, a fragmented banking sector, and rising geopolitical risks. In Japan, a sales tax hike in April caused a more significant contraction in activity than expected, while exports failed to pick up.Publication Tanzania Economic Update, October 2012(World Bank, Washington, DC, 2012-10)Tanzania continues to stand out as a model of sound economic performance in the African continent, with a growth rate of over six per cent in 2011 and 2012, surpassing other regional economies and demonstrating impressive resilience to the global economic crisis. This is the second issue of the Tanzania economic update series. The series aim to engage a broad audience in a discussion of the state of the economy in general, as well as in specific debates of topical importance in Tanzania. The current issue seeks to get the discussion going on how to achieve the structural transformation of the rural economy so that rural households can also benefit from the country's remarkable growth performance.Publication Kenya Economic Update, December 2014, No. 11(World Bank, Nairobi, 2014-12)This is the eleventh edition of the Kenya Economic Update. The special focus of this update examines the structural factors underpinning the poor performance of the manufacturing sector. Drawing on recent firm-level data from the 2010 Industrial Census and the 2013 Enterprise Survey. It investigates the extent to which the sector's lack of dynamism reflects problems in Kenya's business environment, which compares poorly to regional neighbors' on several manufacturing-relevant dimensions. The report has four main messages: First, Kenya begins 2015 in a sound economic position. After growing an estimated 5.4 percent in 2014, its economy is poised to be among the fastest growing in the region, with growth projected at 6.0 percent in 2015, 6.6 percent in 2016, and 7.0 percent in 2017. Second, the external sector remains weak and vulnerable, as import growth continue to outpace export growth and short-term flows finance the current account deficit. The large deficit points to underlying structural weaknesses in Kenya's economy, which need to be addressed. Third, Kenya needs to increase the competitiveness of the manufacturing sector so that it can grow, export, and create much-needed jobs. As a share of GDP, Kenya's manufacturing sector has been stagnant in recent years, and it has lost international market share; lastly, the weak business environmentis a key constraint for the manufacturing sector. Obstacles to doing business affect this sector more than many others because manufacturing needs access to capital for investments, infrastructure to import inputs and export and distribute finished products, affordable and reliable electricity to produce, labor to man operations, and fair and streamlined regulations and trade policies that allow firms to compete.Publication Philippines Quarterly Update, September 2011 : Solid Macroeconomic Fundamentals Cushion External Turmoil(Manila, 2011-09)The Philippines Quarterly Update provides an update on key economic developments and policies over the past three months. It also presents findings from recent World Bank work on the Philippines. As of September 2011 due to sluggish exports and government spending, economic growth was lower than expected. The Philippine economy continued to decelerate during the first half of 2011 as investment and exports contracted. Private consumption growth remained robust, rising by 5.4 percent in the first half of 2011 and contributing 3.6 percentage points to GDP growth in Q2 2011. A contraction in construction spending slowed down growth of fixed capital formation. On the supply side, the resilient services sector was the main source of growth. The Philippines' external position and macroeconomic fundamentals remain strong. Monetary policy remains accommodating, while the fiscal deficit is likely to fall below target. After a strong rebound in 2010, economic growth in 2011 is likely to remain around 5 percent with downside risks. The challenge for policymakers is to ensure that the Philippines continues to improve its competitiveness, while cushioning the economy from adverse external shocks.
Users also downloaded
Showing related downloaded files
Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Kenya Country Climate and Development Report(Washington, DC: World Bank, 2023-11-16)The Kenya Country Climate and Development Report (CCDR) aims to identify the impact of climate change on Kenya’s economy. Through robust and rigorous analyses that cover climate impact modeling across multiple scenarios and the overall economy, sectoral issues, investment needs and potential sources of financing, the CCDR aims to identify high impact intervention areas that would support climate positive development. Action against climate change is imperative to avoid setting back Kenya’s aspiration of being an upper-middle-income country and reducing poverty in the next decade. In a business-as-usual scenario, inaction under different climate futures could dampen real GDP by 1.25 to 2.4 percent by 2030 and 3.61 to 7.25 percent by 2050 compared to the baseline. Climate impacts Kenya’s human, natural and physical capital and the impacts vary by region. By 2050, no climate action could also result in 1.1 million additional poor compared to the baseline under the pessimistic climate scenario, with communities in the arid and semi-arid areas being most hard-hit. Kenya can also be a key player in the global climate solutions arena if it maintains a low-carbon growth path. Kenya stands out among African and lower-middle-income countries due to its well-diversified and primarily low-carbon energy mix, with about 90 percent of electricity generation coming from renewable resources. Kenya could also generate carbon offsets through large-scale landscape restoration. The CCDR identifies five key action areas that could enable Kenya to meet its growth aspirations in an inclusive and climate-resilient manner. The three multisectoral action areas are: managing water, land, and forest for climate-resilient agriculture and rural economies; delivering people-centered resilience with climate-informed basic services and urbanization; and strengthening Kenya’s competitiveness in international markets through shifts in energy, transport, and digital systems. It is necessary to complement these the three action areas with two crosscutting actions areas - improving integration and coordination of climate action in policy, planning, and investment decision-making across the economy, and developing and operationalizing policy measures for mobilizing climate finance from private and public sector. Implementing these action areas should account for regional differences to climate risk exposure.Publication Africa's Pulse, No. 31, Spring 2025: Improving Governance and Delivering for People in Africa(Washington, DC: World Bank, 2025-04-23)Amid global economic uncertainty and limited fiscal space in the region, Sub-Saharan Africa's economic activity is showing some resilience, with projected growth gradually increasing over 2025-2027 period. This growth is driven primarily by a rise in private demand, alongside a reduction in inflation rates and stable currencies. However, growth has been unable to reduce poverty and meet people's aspirations. The region is also grappling with persistent challenges, including political unrest and escalating demands for adequate economic opportunities, as reflected in a surge in protests over the past decade and a notable rise in coups since 2000. These dynamics highlight the urgent need for a renewed social contract between governments and citizens, emphasizing efficient public spending, better governance, and transparent market regulations to foster job creation and sustainable economic growth. African governments must prioritize governance reforms to maintain growth momentum and restore public trust. The report underscores the importance of strategic investments and complementary policies that bolster human capital, improve public services, and create a fair tax system, thereby fostering a business environment that supports growth and job creation.Publication Europe and Central Asia Economic Update, Spring 2025: Accelerating Growth through Entrepreneurship, Technology Adoption, and Innovation(Washington, DC: World Bank, 2025-04-23)Business dynamism and economic growth in Europe and Central Asia have weakened since the late 2000s, with productivity growth driven largely by resource reallocation between firms and sectors rather than innovation. To move up the value chain, countries need to facilitate technology adoption, stronger domestic competition, and firm-level innovation to build a more dynamic private sector. Governments should move beyond broad support for small- and medium-sized enterprises and focus on enabling the most productive firms to expand and compete globally. Strengthening competition policies, reducing the presence of state-owned enterprises, and ensuring fair market access are crucial. Limited availability of long-term financing and risk capital hinders firm growth and innovation. Economic disruptions are a shock in the short term, but they provide an opportunity for implementing enterprise and structural reforms, all of which are essential for creating better-paying jobs and helping countries in the region to achieve high-income status.