Africa Focus: World Bank says investment in infrastructure, devolution spurs Kenya's growth

Increased investment in infrastructure development and devolution have helped in improving Kenya's prospects for growth and shared prosperity, the World Bank said in a report released in Nairobi on Wednesday.

The report said that investment in infrastructure has been sustained and economic growth remains robust with a positive outlook for the medium term.

"We also draw attention to the inefficiencies within sectors and how they adversely affect the poor," World Bank Lead Economist for Kenya, Apurva Sanghi said during the launch of the report, The Kenya Public Expenditure Review (PER) for December 2014.

"For example, although spending on primary health is highly beneficial for the poor it only receives 29 percent of the health budget compared to about 40 percent given to curative health," Sanghi added.

The report says the country is making progress in the right direction, despite emerging fiscal pressure. It identifies the transformative impact of devolution and increased investment in infrastructure as key factors contributing to broad-based growth.

The East African nation's economy has recovered from the negative shocks that it experienced in 2008-2009, posting an average growth rate of 6 percent for the past five years, according to the PER, which projects that growth will remain between 6 to 7 percent to 2017.

According to the World Bank, although the economy is much larger, following the rebasing of its GDP in September 2014, the capacity to service debt has not changed.

"The PER highlights the tremendous economic and social progress that Kenya has made in recent years and the challenges that continue to impact the economy," said World Bank Country Director for Kenya Diarietou Gaye, adding that the government needs to make choices to spend more or to spend smarter.

Kenya is implementing several infrastructure projects, including the construction of the first phase of the Standard Gauge Railway linking Mombasa and Nairobi. The project is expected to result in both shorter freight delivery time and lower transportation costs, boosting regional trade.

Kenya also allocates one fifth of national expenditure to 47 counties, equivalent to four percent of Gross Domestic Product (GDP), which has great potential to catalyze growth at the grassroots level.

The report says the government's expansionary fiscal policy has increased opportunities for growth, but also constrained public expenditure management, particularly in how resources are allocated and used.

This is mainly attributed to several factors including rising public debt and spending pressure arising from devolution, financing of the security sector, funding of the Jubilee government's flagship infrastructure projects, and persistent increases in the public wage bill.

Jane Kiringai, World Bank Senior Economist for Kenya and Lead Author of the report, said 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.

"The potential situation increases the risk of inflation if economic growth accelerates beyond the prevailing levels," she said.

The bank urged Kenya to reflect on its big spending decisions to contain growth of recurrent administrative costs, improve selection, prioritization and execution of infrastructure projects, and to sufficiently plan for recurrent operating costs. Endi