The World Bank has downgraded its economic growth forecast for Kenya to 4.7% from an initial 5.0%, citing the impact of floods, anti-government protests, and faltering fiscal consolidation efforts.
In its latest Kenya Economic Update report, the international financial institution acknowledged Kenya’s progress in stabilizing the exchange rate, boosting foreign exchange reserves, and lowering inflation. However, the report highlighted the persistent risk of debt distress.
“Debt vulnerabilities, including elevated debt servicing costs, accumulated pending bills, and missed revenue targets, remain key challenges,” the bank stated.
While the revised growth estimate for 2024 is lower than last year’s 5.6%, it is still projected to exceed the sub-Saharan Africa average of 3.0%. The World Bank anticipates medium-term growth to rebound to 5.1% contingent on the government effectively addressing its fiscal challenges.
“Revenue shortfalls have necessitated additional spending cuts, and rising financing needs have led to increased domestic borrowing,” the World Bank noted.
The report further detailed a rise in non-performing loans within the banking sector, attributed to borrowers struggling to service their loans amidst high interest rates and economic slowdown.
Addressing Structural Imbalances
The bank urged the government to tackle “structural imbalances” that hinder Kenya’s pursuit of sustained and inclusive growth, emphasizing the need for higher-quality job creation.
Economic Headwinds
Beyond the challenges posed by flagging government revenues, a high debt burden, and associated servicing costs, the economy faces social unrest and financial risks.
Violent protests in June compelled President William Ruto to abandon tax hikes outlined in the Finance Bill 2024, which aimed to raise over Ksh258 billion in additional revenue. This setback dampened investor sentiment.
The protests occurred against a backdrop of widespread flooding in April and May, further disrupting economic activity.
Previous Forecast
In its June Kenya Economic Update (KEU), the World Bank reported the country’s real GDP growth accelerating to 5.6% in 2023, surpassing the previous year’s growth of 4.9%.
“However, GDP growth in 2024 is expected to slow down to 5.0%. According to the 29th edition of the Kenya Economic Update: Fostering Trade for Robust Growth and Dynamic Job Creation, tight fiscal and monetary policies, elevated inflation, rising debt service obligations, high borrowing costs that constrained access to global capital markets, and the sharp depreciation of the shilling framed Kenya’s macroeconomic performance in 2023,” the bank stated.
The KEU projected GDP growth of 5.2% on average during 2024-26, underpinned by favourable weather conditions for the agricultural sector, an industrial recovery, and the resilience of services.
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