Treasury upbeat of 6pc growth this year amid inflation worries

National Treasury is upbeat the country will maintain an economic expansion rate of 6% this year, a rate slower than last year as inflationary pressures mount.

The National Treasury expects agriculture, industry and services sectors to drive growth as the country continues to record positive recovery trajectory after contracting in 2020 due to COVID-19 pandemic.

“Following the easing of COVID-19 restrictions, reopening of the economy as well as targeted stimulus interventions by the Government, the economy registered strong recovery of 9.9% in the third quarter of 2021. Overall, the economy is estimated to have expanded by 7.6% in 2021, a much stronger level from the contraction of 0.3 percent in 2020,” said CS Yatani.

The Kshs. 3.31 trillion expenditure for FY 2022/2023 announced Thursday comes on the backdrop of rising cost of living that has seen the cost of basic commodities skyrocket triggered by among them, coronavirus pandemic, drought and war in Ukraine which Treasury say could impact growth.

The country is also heading towards the general election which has often deescalated business activities due to investor uncertainties.

Agriculture sector which is expected to support growth is currently facing drought and high cost of inputs which has forced the government to unveil subsidy programmes especially on fertiliser.

“The price of fertiliser has more than doubled in the last one year and is still rising. To safeguard food security in the country, the Government has allocated Ksh 3 billion to subsidize farmers during the current planting season. We propose to further allocate Ksh 2.7 billion in the FY 2022/23 to cushion the farmers while sustaining food production,” he stated.

The sector is also facing risks from possible adverse weather conditions which treasury says could reverse the projected economic recovery.

Additionally, Treasury CS Yatani announced plans to continue with subsidizing pump prices to cushion consumers from further increases amid rising global crude oil prices.

The rise in fuel prices has seen cost of basic commodities also go up further contributing to inflation pressures.

Kshs. 34.4 billion has already been released towards fuel subsidy through the Petroleum Fuel Levy.

Ken Gichinga, Chief Economist at Mentoria however cautions over reliance on subsidies.

“Subsidies can provide a temporary cushion but sometimes they come with inefficiencies that will require longer strategies to have the market operate on the free market environment,” he added.

Gichinga adds that while the subsidies can also stabilize prices which have skyrocketed, the government needs to embark on strategies that will boost local production key farm inputs such as fertiliser to cut on imports whose dependency exposes the country to global risks.

“When importing we are always at the mercy of the global prices. Long term solution is building more resilience whether is in fertilizer production.