(Bloomberg) -- Kenya’s economic growth decelerated less than forecast in the first quarter, buoyed by the financial services and public administration industries.

Gross domestic product expanded 6.8% in the three months through March from a year earlier, compared with 7.4% in the previous quarter, Kenya National Bureau of Statistics said in an emailed report on Friday. The median of five economists’ estimates in a Bloomberg survey was for growth of 6%

The recovery was constrained by agriculture, the nation’s economic mainstay. The industry shrank 0.7% from a year earlier, compared with a 1.2% contraction in the prior three months, as a prolonged drought weighed on the sector. Expansion in the financial and insurance industry accelerated to 14.4% from 9.9% in the previous quarter and public administration grew 6.4% from 3.3% in the prior three months. 

The stronger-than-expected growth is likely to ease in the second quarter partly due to Russia’s war in Ukraine that’s added pressure on the currency amid a shortage of dollars needed for imports including pricier fuel and wheat. The situation has been exacerbated by tighter financial conditions, drought and uncertainty about the nation’s elections on Aug. 9. According to a report by Deloitte LLP East Africa, previous polls have led to a slowdown in investment.

Weaker growth may increase the risk of East Africa’s largest economy missing its expenditure and revenue targets. That would make it harder to fund its budget deficit and make its bonds less attractive to investors. The nation is already seeking alternative budget funding as yields on its eurobonds have soared. 

The yield on Kenya’s dollar bonds maturing in 2024 was steady at 17.09% on Friday after rising 170 basis points in the first four days of the week.

The Parliamentary Budget Office sees economic growth slowing to 4.9% in 2022, compared with 7.5% last year. Kenya’s National Treasury forecasts growth of 6%.



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