Nairobi, December 20, 2023 ̶ Kenya’s economic performance strengthened in 2023 despite continued challenges, with real GDP growth accelerating from 4.8 per cent in 2022 to an estimated 5 per cent in 2023. This is according to the 28th edition of Kenya Economic Update (KEU) which adds that the improved growth performance is attributed to a strong rebound in the agriculture sector in 2023 which had faced a persistent and severe drought.
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.
“The government’s strategy to tap into concessional borrowing prudently helps reduce the accumulation of expensive debt,” said Keith Hansen, World Bank Country Director for Kenya.
According to the report, debt-related vulnerabilities persist, and rising debt costs constrain the government’s ability to address development challenges. The country is, however, making progress and has reduced the primary deficit from 1.6 per cent of GDP in FY2021/22 to 0.8 per cent of GDP in FY2022/23, while the overall deficit decreased from 6.2 per cent to 5.6 per cent during the same period and is expected to reduce further to 5.4 per cent in FY2023/24.
“Kenya will need 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 Naomi Mathenge, World Bank Senior Economist, and author of KEU.
The KEU projects that the real GDP will grow between 4.5–5.2 per cent in 2024. Improved investor confidence and credit to the private sector—helped by reduced domestic borrowing by the government—will strengthen private investment over the medium term. The outlook is subject to elevated uncertainty because of domestic and external risks. Domestically, droughts and floods would resume inflationary pressures and food insecurity, and coupled with the sustained reform momentum would dampen growth while external risks could stem from global credit markets volatility, lower than anticipated growth in the Euro Zone coupled with elevated commodity prices driven by international conflicts.
Economic growth is a key driver of poverty reduction. At the same time, accelerating the pace of poverty reduction as well as strengthening the relationship between economic growth and poverty reduction remains key to inclusion. In the tight fiscal environment, there is a need to focus on longer-term growth and strengthen inclusion for growth to translate into improved well-being for the society. The second part of this KEU delves into ways of making growth more inclusive and looks at factors affecting the inclusiveness of Kenya’s economic growth as well as policies to make growth more inclusive.