Economic growth in Kenya is being slowed by the current high public debt. This is according to a recent World Bank outlook for 2024 that projected the Kenyan economy to grow by around 5.2%. The new figures are a revised rating from an earlier figure of a 5.0% growth projection. The slightly higher expected growth is as a result of increased private-sector investment in the country.
In comparison, the Kenyan and Ugandan economies are expected to grow at identical rates between 2024 and 2025. Private sector investment and Foreign Direct Investment (FDI) are collectively expected to play a crucial role in driving the two East African Economies. Earlier this year, Hivisasa Africa reported that Uganda had moved ahead of Kenya in the value of FDI inflows into the economy; part of this is a result of Uganda’s oil drilling and piping deal with TotalEnergies.
“Increasing investment is expected to drive growth in Kenya and Uganda, partly owing to improved business confidence. Uganda will also benefit from infrastructure investment ahead of new oil production in 2025, and investment in Kenya should be boosted by increased credit to the private sector as the government reduces domestic borrowing,” the World Bank Report reads in part.
Economic Growth In Kenya: The Challenges
Despite ongoing challenges including a prolonged electioneering period, Kenya’s GDP grew from 4.8% in 2022 to an estimated 5% in 2023. This was majorly attributed to a strong rebound in the agriculture sector in 2023 which had faced a persistent and severe drought as well as moderate growth in the services sector following the biting effects of the COVID-19 pandemic that led to the closure or partial closure of most service industries.
Notably, economic growth in Kenya will also depend on the government’s fiscal discipline. Net domestic borrowing by the state is expected to significantly drop towards the end of the fiscal year ending June. Economists estimate domestic borrowing will drop to about Ksh 377 billion. This will allow for more room for borrowing by the private sector which continues to be the primary Gross Domestic Product contributor and a key employer.
In the third quarter of 2023, real GDP, the size of the economy adjusted for inflation, grew by 5.9 percent from 4.3 percent in a similar period in 2022. This was mainly down to a resurgence in agriculture which has been contracting due to drought.
The report also notes that the recovery of agriculture has led to improvements in food supply and coupled with monetary policy tightening has helped reduce inflationary pressures.
In 2023, tourism continued to expand, credit to the private sector improved and manufacturing activity is expected to improve from the anticipated growth in the agro-processing sector. The economy however still faces several challenges to sustain its growth momentum such as heightened fiscal and external vulnerabilities manifested through high public debt, elevated cost of living, exchange rate pressures, global economic uncertainties, and tight global financial conditions.
Economic Growth In Kenya: Vulnerabilities
Kenya’s debt-related vulnerabilities persist, and rising debt costs constrain the government’s ability to address development challenges. The government is however making progress and has reduced the primary deficit from 1.6% of GDP in FY2021/22 to 0.8% of GDP in FY2022/23, while the overall deficit has decreased from 6.2% to 5.6% during the same period and is expected to reduce further to 5.4% in FY2023/24 ending June 2024.
Over the years, the World Bank has dedicated a significant amount of resources towards ending poverty. This has been hampered by geopolitical conflicts and backward economic policies by most affected countries. To this end, World Bank Group Chief Economist Indermit Gill warns that the years between 2020 and 2030 will be a ‘waste’ if stakeholders do not put in work to pull countries out of poverty.
“Without a major course correction, the 2020s will go down as a decade of wasted opportunity. Near-term growth will remain weak, leaving many developing countries — especially the poorest — stuck in a trap, with paralyzing levels of debt and tenuous access to food for nearly one out of every three people,” Mr Gill said in a statement.
The World Bank’s outlook on economic growth in Kenya is subject to several downside risks. They include a rise in political instability and violence, such as the intensification of the conflict in the Middle East, disruptions to global or local trade and production, increased frequency and intensity of adverse weather events, a sharper-than-expected global economic slowdown, and higher risk of government defaults.
