• World Bank says graft a drag on growth, job creation
  • Finance ministry official says governance reforms underway
  • World Bank lifts growth forecast this year to 4.6%
  • Senior government official disagrees with the forecast

Kenya’s government should tackle corruption to boost economic growth and raise incomes, the World Bank said on Wednesday, as it raised its growth forecast ‌for this year after a stronger-than-expected first half.

The East African nation became a lower-middle-income country ‌in 2014 under the Washington-based lender’s classification, but has lagged its peers on widely used measures of governance.

“Governance challenges are increasingly limiting ​Kenya’s prospects for faster and more broadly shared growth, with corruption as the key binding constraint,” the lender said in the latest edition of its biannual Kenya Economic Update report.

The government has initiated reforms, said Chris Kiptoo, the Treasury’s principal secretary, citing predictable payment timelines for contractors, a new conflict of interest law and digitisation ‌of government procurement to enhance transparency.

“Good ⁠governance is not separate to our development agenda — it is the foundation,” he told a launch event for the report.

The cost of corruption 

Corruption and collusion cost the country ⁠an estimated 2% of GDP a year through higher fiscal deficits, the World Bank said.

“This translates into substantial additional borrowing needs accumulating over time,” it said in the report.

The International Monetary Fund said in June it had shared ​a ​draft report designed to flag governance weaknesses and corruption ​vulnerabilities with the Kenyan government, following a request ‌from Nairobi to look into the issue.

The report will be made public when it is ready, Kiptoo said, without giving a date.

Kenya has been struggling with heavy annual debt repayments in recent years after ramping up borrowing from 2013 to finance infrastructure. It has also been missing its fiscal deficit targets in recent years.

“Corruption risks contribute to a higher cost of borrowing,” the World Bank said in the report, citing ‌a “governance premium” on sovereign borrowing.

Faster growth

The lender lifted Kenya’s economic ​growth forecast for this year to 4.6%, from an earlier forecast ​of 4.3%, citing faster-than-projected growth in the ​first six months of this year.

It however warned of risks, including fiscal slippage that ‌could drive up debt. Kenya will also hold ​a general election in ​August next year, which could increase uncertainty, curb investment and tourism and add to spending pressures, it said.

Kiptoo said the World Bank’s growth forecast for this year was too pessimistic since the ​government expects growth of at least ‌5%, but agreed with the report’s findings on the risks facing the economy.

“It implies a ​sharp slowdown in the second half, which is not what we are seeing,” he said.