- In 2023, Kenya’s economy experienced real GDP growth, surging from 4.8% in 2022 to an estimated 5 per cent.
- Kenya’s agriculture, which had grappled with severe drought, recovered with critical crops, such as tea and coffee, displaying remarkable resilience.
- High cost of living, exchange rate pressures, and global economic uncertainties remain persistent risks to growth this year.
In 2023, Kenya’s economy strengthened, defying persistent challenges as highlighted in the World Bank’s 28th edition of the Kenya Economic Update (KEU). Despite facing continued hurdles, East Africa’s biggest economy experienced an acceleration in real GDP growth, surging from 4.8 per cent in 2022 to an estimated 5 per cent in 2023.
This economic performance is a testament to Kenya’s ability to navigate adversities and build a foundation for sustainable economic growth.
Agriculture helped revive Kenya’s economy in 2023
A key factor contributing to Kenya’s revival of economic performance in 2023 was the robust rebound observed in agriculture. This sector, which had grappled with a prolonged and severe drought, managed to overcome these challenges, displaying remarkable resilience.
During the first half of 2023, the agricultural sector exhibited a notable growth of 6.9 per cent year-on-year, marking a significant turnaround from the combined contraction of 2.0 per cent witnessed during the preceding two years, 2021-2022.
The period was characterized by abundant rains exceeding historical averages throughout the March to May 2023 rainy season, resulting in substantial water availability for agricultural activities.
This favourable weather condition contributed to a remarkable upswing in producing key crops, such as tea and coffee, particularly evident in the second quarter of 2023.
Tea production experienced a 15.2 per cent year-on-year increase, while coffee exports similarly surged by 13.7 per cent year-on-year during the same period.
With the anticipation of persistent favourable weather conditions throughout the second half of 2023, expectations are high for increased crop yields, expanded harvested areas, and a continued enhancement in the overall health of livestock, all of which collectively contribute to sustaining and fortifying the agriculture sector’s robust recovery throughout the year.
The recovery in agriculture was crucial in driving overall economic growth, highlighting the sector’s significance in Kenya’s economic landscape. The services sector also contributed to the improved growth performance, registering moderate expansion.
The combined efforts of these sectors underline the diversified nature of Kenya’s economy, demonstrating its ability to withstand and recover from adverse conditions.
While the positive trajectory in economic growth is commendable, the challenges persist, necessitating a comprehensive and adaptive approach. The KEU’s insights provide a valuable roadmap for policymakers, encouraging them to focus on sustained efforts in addressing challenges and fostering an environment conducive to economic prosperity.
Kenya’s economy’s ability to weather the storm in 2023 is a beacon of hope, inspiring confidence in the nation’s capacity to overcome obstacles and continue inclusive and robust economic development.
Tourism on a continued upward trajectory
In 2023, Kenya’s tourism sector continued its upward trajectory, contributing to its expansion. “Lower the “anticipated growth in Europe could undercut the ongoing recovery in tourism and other exports and remittances,” KEU not” in part.
At the same time, the World Bank noted that the private sector benefited from improved access to loans, signalling a positive trend in the country’s environment.
Anticipated growth in the agro-processing sector further bolstered expectations for an upswing in manufacturing activity, promising diversification and sustainability in the economy.
However, amid these positive developments, Kenya is grappling with formidable challenges that could impede its growth momentum. High public debt emerges as a significant concern, with extensive fiscal and external vulnerabilities looming.
The multilateral lender noted that the elevated cost of living, exchange rate pressures, global economic uncertainties, and tight global financial conditions compound the challenges faced by the nation.
Despite these obstacles, the government’s approach to concessional borrowing, as acknowledged by the World Bank Country Director for Kenya, Keith Hansen, is a prudent measure to mitigate the accumulation of expensive debt.
The economic report underscores the persistence of debt-related vulnerabilities, emphasizing that rising debt costs hinder Kenya’s government’s ability to address crucial development challenges.
Despite these hurdles, Kenya demonstrates progress in fiscal management, as evidenced by the reduction in the primary deficit from 1.6 per cent of GDP in FY2021/22 to 0.8 per cent in FY2022/23. Moreover, the overall deficit declined from 6.2 per cent to 5.6 per cent during the same period, with further reductions anticipated to 5.4 per cent in FY2023/24.
“Kenya wi“l needs to balance the short-term challenges of macroeconomic stability with the need to focus on policies for achieving longer-term growth that includes all in society,” said Na” mi Mathenge, World Bank Senior Economist and author of KEU.
Read also: Agriculture-led recovery propels Kenya’s tKenya’sarter GDP growth to 5.9%
Kenya’s eKenya’s2024 growth forecast
According to the Kenya Economic Update (KEU), the country’s prospects for 2024 are characterized by cautious optimism, with the real GDP projected to grow within the range of 4.5–5.2 per cent.
“New tax “administration and policy measures, including, among others, increased tax on employment income above KSh6 million, VAT on petroleum products, and withholding tax on digital content, are expected to generate 1.6 per cent of GDP in additional revenue and complement continued expenditure rationalization,” KEU not”s in part.
The positive outlook hinges on factors such as improved investor confidence and increased credit to the private sector, facilitated by a reduction in domestic borrowing by the government. This reduction is expected to bolster private investment over the medium term, fostering a conducive environment for economic expansion.
However, the optimism is tempered by recognising heightened uncertainty stemming from domestic and external risks. On the domestic front, the possibility of recurring droughts and floods threatens economic stability by reinstating inflationary pressures and exacerbating food insecurity.
Concurrently, despite sustained reform momentum, there remains a risk of growth dampening. Externally, global credit market volatility looms as a potential risk factor, posing challenges to Kenya’s eKenya’s stability.
Furthermore, lower-than-anticipated growth in the Euro Zone and elevated commodity prices fueled by international conflicts introduce additional external pressures.
Tight fiscal environment
In light of these uncertainties, the KEU underscores the importance of monitoring and addressing these risks to ensure the resilience of Kenya’s trajectory in the coming year.
Within a tight fiscal environment, the World Bank emphasizes the importance of long-term growth strategies to ensure sustained economic development in Kenya. The recognition is that while economic growth is pivotal, it must translate into tangible improvements in the well-being of Kenyan society.
This entails moving beyond immediate fiscal challenges and focusing on inclusive policies that address the broader socio-economic landscape.
The World Bank underscores the importance of not just focusing on headline growth figures but ensuring that the benefits of growth are distributed across the population, fostering a more equitable and sustainable development path.
The second segment of the KEU delves into the intricacies of fostering inclusive growth. It explores various factors influencing the inclusiveness of Kenya’s Kenya’s development, shedding light on the barriers that may hinder widespread benefit.
Furthermore, the report delves into policy recommendations to enhance inclusivity, acknowledging the multifaceted nature of the challenge.
By addressing these factors and implementing targeted policies, the KEU aims to guide policymakers towards fostering an economic environment where growth is robust and benefits all strata of society, ultimately contributing to improved well-being for the entire Kenyan populace.
