Government not Doing Enough in Facilitating Growth of the Big 4

World Bank, through a report Kenya Economic Update outlined policy actions that will aid the Government in facilitating growth and the participation of the four key areas of universal health coverage, food security, affordable housing, and boosting the manufacturing sector.

Fears, however, are that the government’s efforts in achieving the goals are not satisfactory, which is why World Bank made some recommendations. According to the report, the realization of the four key areas relies on a stable macroeconomic environment, which are the drivers of the private sector growth.

“There is a need for the containment of public sector resources devoted to the Big 4 within a fiscally sustainable resource envelope. A reduction in inefficiencies in spending is also mandatory to maximize impact,” the World Bank recommends.

There is insufficient fiscal space to fund the priority areas in dire need of resources but the World Bank projects that the public sector will play a crucial role in creating a favorable environment to accelerate the private sector resources towards the attainment of the Big 4 goals.

The country needs a fiscal consolidation with an objective of lowering the budget deficit, changes in the mobilization of revenue, expenditure rationalization and improvements in the management of debts if the macroeconomic environment is to be boosted.

All these dynamics are geared towards re-igniting the private-sector and to center private investments to the Big 4.

Further recommendations by the report state that the monetary policy should be unshackled by removing the interest rate. It says that this will allow the private sector respond better to the slack in the economy.

The removal of the cap rate, however, has been opposed by the Institute of Certified Public Accountants of Kenya (ICPAK) arguing that it is good for Kenya’s economy.  This is contrary to what the report says, that the removal of interest rates will need to be accompanied by a lower deficit, lower benchmarks, improvement of universal credit scoring among other measures.

Regarding the sector-specific recommendations, WB says more investments in the productive areas like irrigation, research, extension services, and development are ideal for boosting food production and agricultural output.

It also pushes for the removal of the “untargeted and regressive” fertilizer input subsidy program, which is costly and only disproportionally benefits large and medium-sized farmers while crowding out private investment in the purchase of fertilizers.

More recommendations included subsidizing health insurance for the poor, exploring various health financing options and the development of special industrial parks and export processing zones for the health and manufacturing sectors.

The projection by the Bank is that the GDP will grow by 5.5 percent in 2018, and by 2020, it is expected that the GDP will have grown by 6.1 percent driven by domestic demand.