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Securing Kenya’s Future Growth: Policies to Sustain Inclusive Growth

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Kenya continues to experience steady economic growth, with real GDP expanding on average by 5.6 percent over the last five years (2014-2018). In 2019, however, economic activity has softened to 5.8 percent from 6.3 percent in 2018 according to the latest World Bank Kenya Economic Update. The moderation in growth is attributed to a slowdown in agricultural output and weak private sector investment. The medium-term growth outlook remains positive with a projected growth of 5.9 percent.

The report notes that Kenya’s overall macroeconomic environment is expected to remain stable with low inflation and a manageable current account deficit, which should be supportive of the inclusive growth agenda of the government. Headline inflation is within the government target range of 52.5 percent, while current account deficit has narrowed significantly due to lower imports, diaspora remittance inflows and improved tourism revenues. Nonetheless, interest rate caps have constrained the operating environment for the banking sector and reduced flexibility for monetary policy to support growth, if needed. The repeal of interest rate caps (if approved) is a welcome development that should eliminate what has been a powerful disincentive for banks to lend to SMEs and restore the potency of monetary policy.

While there is great commitment by the authorities to fiscal consolidation, weak domestic revenue mobilization and expenditure pressures pose a significant challenge to attaining planned fiscal adjustment, with actual deficit consistently exceeding target deficit. This calls for stronger adjustment measures by the government to place fiscal accounts back on a prudent trajectory. These should include actions to increase revenue, make revenue projections more realistic, and strengthen expenditure controls and cash management. In addition, measures to adjust the government’s borrowing plans are essential to rebalance the public debt portfolio towards lower cost and longer-maturity debt, hence reducing its vulnerability to market instability as well as creating fiscal space.

“The expansionary fiscal stance has resulted in the crowding out of private sector investment, an unanticipated rise in public debt, and a continuation of slower private sector credit growth,” said Felipe Jaramillo, World Bank Country Director for Kenya.

The report recommends further structural reforms to lift productivity durably.

“Structural reforms could include continued effort to ease barriers for SMEs growth, improving quality of education and skills development at all levels, empowering women, supporting R&D, technology adoption and digitalization” said Peter W. Chacha, World BankSenior Economist.

The Special Focus topic advances policies to support Kenya’s Digital Transformation. The report concludes that to secure Kenya’s digital future, there is need to “digitally enable” every individual, business and prepare the entrepreneurship ecosystem to capitalize on recent churning of innovative startup stage digital ventures. Legislations and regulations governing the digital economy needs to keep pace with technology evolution to enable growth and competition while protecting consumers. Furthermore, initiatives aimed at building a digitally-savvy workforce should be strengthened.

“It will be important for Kenya to ensure its laws and regulations keep up with the fast-paced digital evolution to grant every Kenyan an opportunity to participate in the digital economy,” said Casey Torgusson, World Bank Senior Digital Development Specialist and author of the special section on Kenya’s Digital Transformation. “Prioritizing and adequately financing partnerships with the private sector to enable investment in increased internet access, technology skills development and regional integration to maximize on the effects of a large single digital market will no doubt enhance Kenya’s position as a silicon savannah.”

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Finance

Uganda Can Rein in Debt by Managing its Public Investments Better

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In the wake of a waning COVID-19 (coronavirus) pandemic and upon full re-opening of the economy, optimism—regarding expected acceleration of growth and a clearer outlook for oil production with the signing of the Final Investment Decision in February 2022—has been dampened by new global shocks, including the impacts of the war in Ukraine.

The 19th edition of the Uganda Economic Update (UEU): Fiscal Sustainability through Deeper Reform of Public Investment Management, a biannual analysis of Uganda’s near-term macroeconomic outlook, estimates growth at 3.7 percent in 2022, which is lower than pre-COVID-19 projections of over 6 percent. Uganda’s gross national income per capita stood at about $840 in FY21 and has increased only marginally in the year since.

Real gross domestic product grew by 4.3 percent in the first half of 2022 supported by a strong and speedy recovery of the service sector upon the opening of the leisure and entertainment industry, accommodation, and food services, as well as sustained buoyancy of the information and communications sector. The report projects a 5.1 percent growth rate in FY23, 0.5 percentage point below the December 2021 forecast, increasing to about 6 percent in FY24.

Rising commodity prices and the overall increase in cost of living pose new risks to livelihoods, that had just begun recovering from the effects of COVID-19. These and other shocks are threatening to stall socio-economic transformation, thus increasing the likelihood of the people falling deeper into poverty,” said Mukami Kariuki, World Bank Country Manager for Uganda. “It is therefore crucial for the Government of Uganda to adopt targeted interventions to support the vulnerable while managing debt and rising inflation.”

The UEU proposes four policy actions that will enable Uganda to sustain a resilient and inclusive recovery: i) accelerate vaccination efforts against COVID-19; ii) adopt targeted interventions to support the vulnerable – such as building shock responsive social protection systems; iii) maintain prudent fiscal and debt management to support the fiscal consolidation agenda; and iv) cautious monetary tightening in the face of rising inflationary pressures.

The report also recommends accelerating longer term structural reforms to (i) strengthen revenue mobilization through the implementation of the Domestic Revenue Mobilization Strategy; (ii) improve public investment management; (iii) rationalize public expenditure to support faster, sustainable, and inclusive growth by investing strongly in human capital development; and (iv) improve the trade and business environment and enable green investments.

The UEU notes that fiscal consolidation is needed to rein in debt and to create the necessary space to respond to shocks that could hurt or stall recovery. This can be done through better Public Investment Management (PIM) building on important reforms that have been undertaken by the government.  The benefits of these efforts are starting to show.

Uganda has a great opportunity to harness Public Investment Management by making sure that beyond preparing good projects, effort is also directed at ensuring that they are efficiently funded, implemented, monitored, operated, maintained, and evaluated.  These steps ensure that the country can reap the maximum value of public investments,” said Rachel Sebudde, World Bank Senior Economist and the lead author of the Uganda Economic Update. Strategic capacity building for government officials is crucial as it will improve the Ministries, Departments and Agencies’ effectiveness across the PIM cycle.”

Notwithstanding the progress achieved in the PIM process, key challenges remain. These include low execution rates on donor and own-budget projects; long implementation delays; cost- and time-overruns on projects; and high commitment fees in the case of non-concessional externally funded projects. Overall, the improvements around the administrative processes of the pre-investment phase of PIM are being discounted by challenges in critical areas, including project prioritization and selection, budgeting, and implementation.

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Environment

New UN financing initiative goes live to power climate action

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A new UN-led financing tool to strengthen weather and climate forecasting, improve life-saving early warning systems, safeguard jobs, and underpin climate adaptation for long-term resilience, officially opened for business on Thursday.

The Systematic Observations Financing Facility (SOFF) is a key building block for a new initiative spearheaded by UN Secretary-General General António Guterres to ensure that early warning services cover everyone on Earth, within the next five years.

SOFF seeks to address the long-standing problem of inadequate weather forecasting and climate services, especially in Least Developed Countries (LDCs) and Small Island Developing States (SIDS).

In support of the Paris Agreement on climate change, it will strengthen the international response to keeping global warming to 1.5 degrees Celsius, “by filling the data gaps that limit our understanding of the climate”, according to a press release issued by the World Meteorological Organization, WMO.

These gaps affect national agencies’ ability to predict and adapt to extreme weather events such as floods, droughts and heatwaves, all of which are on the rise, in line with the warming climate.

Heads of the three founding agencies, WMO, the UN Development Programme (UNDP) and UN Environment Programme (UNEP), joined ministers from donor countries, LDC Group members, Alliance of Small Island States (AOSIS) representatives and development partners, at the first SOFF Steering Committee meeting in Helsinki on Thursday to get the facility up and running.

Boost ‘the power of prediction’

“As the climate crisis worsens, it is crucial that we boost the power of prediction for everyone so countries can reduce disaster risk”, said the UN chief.

“That is why we have launched an initiative to ensure that every person on Earth is protected by early warning systems within the next five years. SOFF is an essential tool to achieve this.  I thank all the countries that are providing initial funding to the SOFF UN Multi-Partner Trust Fund and urge others to do the same”.

“Early warning systems are built on the foundation of weather observation data, but this foundation is patchy to non-existent in many in LDCs and African countries,” stated Selwin Hart, Special Adviser to the Secretary-General on Climate Action and Just Transition.

Join the club

“I want to congratulate all the countries that have come forward and announce or soon will announce their financial contributions to the SOFF UN Multi Partner Trust Fund. I urge others to follow suit and help create a strong global data foundation upon which timely, accurate, people centered early warning systems can be built for   everyone. Our collective efforts are needed more than ever.”

WMO Secretary-General, Petteri Taalas, pointed out that today, less than 10 per cent of required basic weather and climate forecasting systems are available from SIDS and LDCs.

“The world urgently needs this data and this is why SOFF will be a partnership of equals where everyone has a role and responsibilities.”      

SOFF provides benefits not only to the most vulnerable countries, but to all countries across the globe, said WMO. The improved availability of weather and climate observations enabled by the SOFF are essential if the world community is to realize the 162 billion US dollars annually in socio-economic benefits of weather and climate prediction.

Best science, best data

Inger Andersen, UNEP Executive Director, emphasized that “now is the time to begin business by providing financial resources and technical capacity, by ensuring that from local to the global, all our actions can be informed by the best science and the best data. My deep thanks to the generous funders who will announce their firm pledges today. I encourage all to follow suit because now is the time to roll up our sleeves and get to work for people and for planet.”

UN Under-Secretary General and UNDP Associate Administrator Usha Rao-Monari followed, adding that “The United Nations Development Program is a proud co-founder of the SOFF UN Multi-Partner Trust Fund. Together with WMO and UNEP we are building upon the momentum generated over the past two years and I want to sincerely thank all stakeholders that contributed to the development of the SOFF. The specialized support provided by SOF is needed more than ever.”

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World News

Safer roads, a global development challenge for all

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Every 24 seconds someone is killed in traffic, making safety on the world’s roads a global development challenge for all societies, especially for the most vulnerable, a senior UN official has said, ahead of the first ever High-level General Assembly Meeting on Improving Road Safety. 

Nneka Henry, who heads the United Nations Road Safety Fund (UNRSF) Secretariat, noted that 500 children die in crashes every day, and that of the older population, women are 17 times more likely to be killed during a car crash than men, even when wearing seatbelts. 

Challenge for all 

Despite these statistics, road safety is not just a challenge for women or for young people. It is “for each and every one of us who walk, ride, cycle or drive on our roads,” Ms. Henry told Diedra Sealey, a young diplomat in the President of the General Assembly’s HOPE Fellowship programme. 

The interview took place ahead of the High-level Meeting of the General Assembly on Improving Road Safety, which gets underway at UN Headquarters in New York on Thursday and Friday, organized by the President of the General Assembly, Abdulla Shahid, and the World Health Organization (WHO).  

Coinciding with the meeting, is the UN Road Safety Fund pledging conference. The Fund was established in 2018 with a vision to “to build a world where roads are safe for every road user, everywhere.” It specially finances projects in low- and middle- income countries, where some 93 per cent of road deaths and injuries take place. 

“I am here in New York to remind all 193 Member States of their commitment to the Fund’s mandate and success,” Ms. Henry said.  

Those successes include the announcement that as of 1 July, all vehicles imported in East Africa need to be below the Euro 4/IV emission standard and no more than eight years old. 

The Fund has been working with the Economic Community of West African States’ 15 members, to harmonize vehicle standard resolutions.  

Major benefits 

“This will have major air quality and road safety benefits,” Ms. Henry said about the latest announcement.  

Some of the other achievements by the Fund include legislation in Azerbaijan to help emergency post-crash response, help to increase enforcement of the speed limits and other road traffic rules in Brazil and Jordan, as well as improving data collection in Cote d’Ivoire and Senegal, and training urban planners on making safer school zones in Paraguay.  

Vision for the future 

As part of the High-level meeting this week, UN Member States will adopt a political declaration, to lay out a “vision for the future of mobility as one that promotes health and well-being, protects the environment, and benefits all people,” according to a press release. 

The interconnected targets are part of the Sustainable Development Goals (SDGs) that show how road safety is also integrated into the SDGs, from allowing safer access to education, to allowing people access to groceries and reducing carbon emissions into the atmosphere. 

Halving traffic deaths and injuries by 2030 is a target under the third SDG, on good health and well-being. 

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