The Unassuming Economist

From Devdiscourse:

“The latest Kenya Economic Update by the World Bank, prepared by a multidisciplinary team including the Macroeconomics, Trade, and Investment team, examines Kenya’s economic trajectory in a challenging global context. Global growth reached 2.6 percent in 2023, with Sub-Saharan Africa’s real GDP projected to accelerate to 4 percent by 2025-26. Kenya’s economic growth, however, has slowed to 4.7 percent in 2024 from 5.6 percent in 2023, reflecting pressures from severe floods, subdued business sentiment post-protests, and fiscal consolidation. While Kenya has made progress with inflation control and a stronger currency, persistent fiscal deficits, high debt levels, and constrained public spending weigh on its long-term growth potential. Despite improved foreign reserves and macroeconomic stabilization, achieving sustainable development remains a complex challenge.

Fiscal Pressures and the Weight of Debt

Kenya’s fiscal landscape is characterized by significant revenue underperformance and growing debt servicing costs. The fiscal deficit, though narrowed to 5.2 percent of GDP in 2023/24, remains above the target of 4.7 percent, driven by lower-than-expected revenue collections from VAT and departmental fees. This shortfall has limited the government’s capacity for social and developmental investments. Kenya’s debt burden remains high, with domestic debt now comprising the majority of its liabilities, reflecting increased reliance on local borrowing. High domestic borrowing not only crowds out private-sector investment but also adds to fiscal pressures. Although the government has introduced tax reforms and expenditure rationalization policies, implementation gaps and socio-political challenges have hindered meaningful progress.”

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