By Judith Ugwumadu | 4 February 2015
Devolution in Kenya and increased investment in its infrastructure has resulted in positive growth prospects and shared prosperity, a World Bank public spending review has concluded.
Kenya’s economy recovered from the negative shocks that it experienced in 2008/09, with an average growth rate of 6% for the past five years, according to the bank’s Kenya Public Expenditure Review.
It praised the ‘ambitious’ devolution process, which had transformed the way public finances were administered over the past two years. Kenyan counties are allocated one-fifth of total national expenditure, equivalent to 4% of gross domestic product. The bank said this had the potential of speeding up growth at the grassroots level.
It also said investments in infrastructure had grown considerably and was now second only to education. Infrastructure is projected to increase to half the capital budget by 2017.
But the bank said public financial challenges continued to present themselves, including rising public debt and spending pressures from devolution, the government’s infrastructure projects, security and the public wage bill.
The World Bank said these factors would make it difficult for the government to effectively manage its public expenditure and therefore urged Kenya to ‘make choices to spend more or spend smarter’ so growth is maintained and funds are spent properly.
‘The pressure on budgets is expected to continue in the medium term as both the national and county governments spend more on these critical areas,’ said Jane Kiringai, World Bank senior economist for Kenya and lead author of the report.
‘The potential situation increases the risk of inflation if economic growth accelerates beyond the prevailing levels.’
Separately, the International Monetary Fund this week approved $688.3m for the East African Country. This is intended to anchor continued fiscal policies, while mitigating the impact of potential external shocks.
The IMF said continued reforms to public finance management, in particular full implementation of the treasury single account, the adoption of a borrowing framework for counties and the close monitoring of contingent liabilities, would be key to containing fiscal risks in the period ahead.
