Investment in a new railway system in Kenya is bound to boost economic growth significantly in the country and the East Africa region.
According to an IMF Mission led by Mauro Mecagni that was in Kenya, the initiation of the standard gauge railway (SGR) project is a major step for Kenya and for the region.
This is because it will boost integration across East Africa by reducing transport costs significantly, bringing down the cost of doing business and improving standards of living for the population and helping Kenya move closer to the medium-term goals outlined in its Vision 2030 plans.
IMF project that the SGR’s initial construction work will contribute to higher real gross domestic product (GDP) growth, expected to rise to 6.9 per cent in 2015 from 5.3 per cent in 2014.
“Imports of equipment for the SGR project combined with continued investment in oil exploration are expected to keep the external current account deficit relatively high at around 8.5 per cent of GDP in 2015, albeit a slight decline from a projected nine per cent deficit in 2014 thanks to lower international oil prices,” said Mecagni.
Mecagni added that Kenya’s economy remains robust, supported by strong credit growth and a dynamic investment environment.
Inflation has declined in the last two months and remains within the government’s target range while a gradual depreciation of the Kenyan shilling reflects developments in international currency markets.
International reserves stand at 4.9 months of prospective import coverage, boosted by proceeds from the successful June 2014 sovereign bond issuance.
Investment in power generation, in particular in geothermal energy, is already translating into lower electricity costs for firms and households. However, difficult security conditions are having a dampening effect on the tourism sector.
International Monetary Fund (IMF)