- Kenya’s economic growth will average 5.2% in 2023 and 2024, notwithstanding current global and domestic shocks
- The World Bank said the baseline assumes a robust growth of credit to the private sector, continued low COVID-19 infection rates and a near-term recovery in agricultural production
- The report also noted that the country’s economy continued to rebound from the pandemic in 2022, with the real gross domestic product (GDP) increasing by 6% year-on-year in the first half of 2022
A new report has revealed that Kenya’s economic growth will average 5.2% in 2023 and 2024, notwithstanding current global and domestic shocks.
In its latest finding on the East African nation, the World Bank said the baseline assumes a robust growth of credit to the private sector, continued low COVID-19 infection rates, a near-term recovery in agricultural production, and high commodity prices favourable to Kenyan exports.
“We expect these developments to catalyse private investment to support economic growth over the medium term,” the finding said.
Kenya’s economic growth rebounds in 2022
The report noted that Kenya’s economic growth continued to rebound from the pandemic in 2022, with the real gross domestic product (GDP) increasing by 6% year-on-year in the first half of 2022.
According to World Bank, the growth was driven by broad-based increases in services and industry. Global commodity price shocks, the long regional drought, and uncertainty in the run-up to the 2022 general elections dampened this recovery.
The 26th edition of the Kenya Economic Update (KEU) also noted that the ongoing drought and the cost-of-living increases had affected households throughout the country.
During the twelve months period, the agriculture sector contracted by 1.5% in the first half of 2022 and with the sector contributing almost one-fifth of GDP, its poor performance slowed GDP growth by 0.3%.
Kenya’s economy to grow by 5.5% in 2022, down from 7.5% in 2021
A recent rapid response phone survey that monitors the impact of shocks on households shows a rise in food insecurity, most severely in rural areas, where over half of households reduced their food consumption in June 2022.
Most households reported an increase in prices of essential food items, with many unable to access core staples, such as beans or maize. In response to the inflationary pressures, the Central Bank of Kenya (CBK) has raised the policy rate thrice since May 2022 by a cumulative 175 basis points to 8.75%.
Agriculture sector can reduce poverty, spur growth
“Kenya can further leverage the agriculture sector to spur growth, poverty reduction, and food security,” said Keith Hansen, World Bank Country Director for Kenya.
“Boosting food resilience through community interventions in arid and semi-arid lands while supporting farmer groups to link into sustainable value chains will help to feed Kenya during periods of drought better.”
“Private sector-led growth is critical to job creation and a steady increase in household living standards over time,” said Naomi Mathenge, World Bank Senior Economist for Kenya.
The government reduced the budget deficit in fiscal year (FY) 2021/22 from 8.2% to 6.2% through revenue measures and expenditure moderation.
Total revenue increased to 17.3% of GDP in FY2021/22 from 15.7% in FY2020/21, reflecting the pickup in domestic demand and a range of tax reforms and improvements in tax administration and the use of technology.
These have yielded a reduction in tax expenditures through harmonising exemptions, enhanced compliance through voluntary disclosure programs for previously undeclared tax, and easier access to the Kenya Revenue Authority (KRA) web system.
The reduction in the fiscal deficit has contributed to stabilising the debt-to-GDP ratio at about 67.3% in FY21/22, underlying the importance of fiscal consolidation.
The report recognises that responding to the rising cost of living and climate change shocks amid limited fiscal space are some of the government’s immediate challenges.
The KEU recommends prioritising policy options that help raise productivity and resilience at the household, producer, and national levels. The particular focus section of this edition delves into policy priorities to advance productivity improvements in agriculture, where many Kenyans remain employed and spur economic transformation and job creation through the digital economy while ensuring support for the most vulnerable households.
