KENYA

Key conditions andchallenges

Table 12023

Population, million

55.1GDP, current US$ billion

107.5

GDP per capita, current US$

1950.1

International poverty rate ($2.15)

a36.1
a70.1

a91.3

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

a38.7

School enrollment, primary (% gross)

b97.2

b61.4

Total GHG emissions (mtCO2e)82.5Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2021), 2017 PPPs.
b/ WDI for School enrollment (2022); Life expectancy(2021).

Kenya’s growth rebounded after two consecutive years of droughts, as the poverty
rate continued its declining trend. TheGovernment of Kenya is taking bold measures to strengthen its macroeconomic policy framework. Fiscal consolidation remains
a top priority, which in combination with atighter monetary policy and improved global credit outlook made the country regain
access to international financial markets.
The outlook remains positive in the medium
term, although the failure to achieve fiscal
consolidation targets could exacerbate
Kenya’s debt vulnerabilities.

Kenya’s GDP growth accelerated in 2023
after two consecutive years of droughts.
Notwithstanding the cyclical rebound,long-term development challenges remain.
Years of public-sector led growth and debt
accumulation brought macroeconomic imbalances and did not create enough quality
jobs that can sustain higher wages and accelerate poverty reduction. Compoundedwith high trade costs, these imbalances
have generated a sluggish tradable sector
in the economy. During 2023, uncertainty
over future external financing were added
to regular low exports and FDI, creatingpressures on the foreign currency market.
Climate shocks are increasing in frequency and intensity, threatening the livelihoods of many Kenyans, especially in
dry and arid regions.
Kenya’s economic growth has not been
sufficiently inclusive, with the connection
between growth and poverty reduction
weakening. The poor have fewer household members working and are more likely to be engaged in subsistence agriculture
and low-productivity services sub-sectors
for employment. Strategies to enhance inclusive growth should focus on promoting
productive employment and strengthening resilience to adverse weather shocks.
The government has taken steps to reinforce its macroeconomic policy framework. A tighter monetary policy continued fiscal consolidation, and the returnto global capital markets through the issuance of a Eurobond in February 2024
helped to improve market confidence andforeign currency reserves. But there is
scope to do more. Despite strengthened
tax administrative measures, tax collection is characterized by low compliancelevels, while expenditure inefficiencies
and fiscal slippages are common. FDI isstill restricted by complex entry and licensing procedures which limit international integration, and the economy islosing competitiveness in major exporting
markets. Recent measures to strengthenmarket regulations and reduce the footprint of the State in the economy are positive, although there is space to enable agreater expansion of the private sector toraise productivity and create better jobs.

Recent developments
Kenya’s real GDP expanded by 5.4 percent
in 2023. The agricultural sector experienced a stronger than expected reboundafter two years of drought. The onset ofthe rains led to improved crop yields andlivestock health, which supported poverty
rates to resume their downward trajectory.
The $2.15 international poverty rate is projected to have declined from 35.8 percent
in 2022 to 35,1 percent in 2023.
Moreover, industry and services continued to show resilience despite surging
production costs, increased cost of credit,
and a depreciating shilling. The depreciated currency depressed imported oil
products, machinery, and transport

FIGURE 1 Kenya / Annualized quarterly real GDP growthand contributions to annualized real quarterly GDP growthFIGURE 2 Kenya / Actual and projected poverty rates andreal private consumption per capita

Percentage points
12Poverty rate (%)

10

Real private consumption per capita (constant LCU)

100

16000090

14000080120000870

660

100000

50

80000

440

60000

230

40000

200

20000

100-2
2021Q12021Q3

Agriculture
Taxes

2022Q12022Q32023Q1

Industry
GDP growth2023Q30
2015

Services

Sources: World Bank and Kenya National Bureau of Statistics.

2017

2019

2021

1

Apr 242025

International poverty rate

Lower middle-income pov. rate

Upper middle-income pov. rate

Real priv. cons. pc

Source: World Bank. Notes: see Table 2.

MPO2023

equipment but did not result in higher
exports. As imports fell faster than exports and remittance flows held up, thecurrent account deficit narrowed to 3.9
percent of GDP in 2023. FX reserves
stood at US$ 7.1 billion or 3.7 months ofimport by January 2024, improving fromDecember 2023 but still below the Central Bank of Kenya’s (CBK) statutory minimum of 4.0 months of import cover.
Inflation fell to 6.9 percent by January2024, within the CBK’s target range of5±2.5 percent, as falling commodity prices
and tight monetary policy offset exchangerate passthrough. During 2023, the CBK increased its policy rate by a total of 375 basis
points, including a 200-basis-point hike inDecember, with another increase of 50bps,
to 13 percent, in February 2024.
Fiscal consolidation continues as the government is expanding the tax base and rationalizing non-priority spending. However,revenue collection is lagging. Tax policy andtax administration measures were submitted to parliament by mid-December 2023 toensure meeting end-of-year targets. As ashare of GDP, public debt rose to 73.2 percent in 2023 from 70.6 percent in 2022.

Outlook
Kenya’s outlook remains positive in themedium term, with real GDP projected
to grow by 5.2 percent on average in
2024-2026. Persistent structural challenges
notwithstanding, a stronger macroeconomic framework and the regaining ofaccess to international financial markets
will spur investor confidence and private
investment, supporting capital inflows,
and freeing more credit to the private
sector through reduced domestic government borrowing. As reforms materialize, exports are projected to increaseas Kenya implements trade agreements
signed under the EU-EPA, AfCFTA, andpotential other trade agreements. FDI,tourism, and remittance inflows will support external financing; the current account deficit is expected to remain within
3.9 and 4.1 percent of GDP. A more stable currency, moderating global and local inflation pressures, and, eventually,a more accommodative monetary policy
will accelerate credit growth.

TABLE 2 Kenya / Macro poverty outlook indicators

Ongoing fiscal consolidation is expected toreduce the fiscal deficit, which is projected todecline to -4.1 percent of GDP in 2024, targetingaprimarysurplusof1.2percent.
Real per capita incomes are expected togrow, and the poverty incidence is expected
to resume its pre-pandemic downward
trend,decliningbynearlyapercentagepoint
each year toward pre-pandemic levels. The
US$2.15 poverty rate is expected to fall from35.1percentin2023to34.4percentin2024.
The outlook is subject to elevated uncertainty. The failure to achieve fiscal consolidation targets could exacerbate Kenya’s
debt vulnerabilities, especially due to still
high-debt service repayments. Climate
hazards could resume inflationary pressures and food insecurity, affectinggrowth. Lower than anticipated growth ofinternational partners could undercut ongoing recovery in tourism, exports, and remittances. Elevated commodity prices
would further tighten financial condition,
weaken external balances, and impact inflation. The upside risks are linked to fasterthan expected normalization in global financing conditions and lower international fuel and food prices.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market pricesPrivate consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
7.6
6.2
6.0
10.8
15.3
22.2

2022
4.8
3.1
7.4
-1.1
10.7
4.5

2023e
5.4
5.0
5.7
0.1
-6.8
-7.8

2024f
5.0
4.9
1.6
5.3
8.7
3.0

2025f
5.3
5.3
0.8
7.8
9.6
5.5

2026f
5.3
5.4
1.1
7.8
9.9
6.4

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

7.1
-0.4
7.5
9.6

4.5
-1.6
3.9
6.7

5.4
6.1
2.2
6.2

5.0
4.1
4.0
5.6

5.3
4.4
4.1
5.9

5.3
4.5
4.3
5.9

Inflation (consumer price index)

6.1

7.6

7.7

7.0

5.0

5.0

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

-5.2
0.0

-5.1
0.3

-3.9
0.4

-3.9
0.6

-4.0
0.7

-4.1
0.8

Fiscal balance (% of GDP)
Revenues (% of GDP)
Debt (% of GDP)
Primary balance (% of GDP)

-7.3
16.8
68.1
-2.5

-5.9
17.1
70.6
-0.8

-5.2
17.8
73.2
0.0

-4.1
19.1
71.81.2

-3.3
19.3
69.0
1.7

-3.2
19.4
66.6
1.7

36.1
70.1
91.3

35.8
69.8
90.9

35.1
69.2
90.1

34.4
68.5
89.2

33.6
67.8
88.2

32.7
67.0
87.2

3.5
26.5

4.6
26.6

5.0
26.4

5.9
26.1

6.5
25.8

6.4
26.0

a,b

International poverty rate ($2.15 in 2017 PPP)a,b
Lower middle-income poverty rate ($3.65 in 2017 PPP)a,b
Upper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Calculations based on 2013-, 2018-, and 2021-KCHS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026.
b/ Projection using point to point elasticity at regional level with pass-through = 1 based on private consumption per capita in constant LCU.

MPO2Apr 24