Kenyan economy is recovering from political crisis, but challenges remain
NAIROBI, June 7, 2023 — Economic performance slowed after GDP growth of 4.8% in 2022 and 7.5% in 2021 on strong recovery from the COVID-19 crisis . However, the growth rate is consistent with Kenya's long-term growth rate. The economy remained on a solid growth trajectory in the period despite facing difficult global financial conditions, election-induced fuel and food price shocks, and a historic drought that affected the economy particularly in the second half of 2022. It has changed.
The growth momentum was driven by the services sector, which contributed about 80% of the total GDP increase. Financial services, tourism and transport sectors performed particularly well. According to the latest Kenya Economic Update (KEU), Kenya's GDP growth rate exceeded that of sub-Saharan Africa, which is estimated to grow by 3.6% in 2022.
Strong GDP growth in the midst of a tremendous crisis highlights the resilience of the Kenyan economy. Like many countries around the world, Kenya faces inflationary pressures amid fluctuating commodity prices, tighter global financial conditions put significant pressure on exchange rates and foreign exchange reserves, and the worst drought in 40 years. food insecurity has increased significantly, affecting millions of people. About livelihood. Macroeconomic policy aimed to balance the complex economic environment through a combination of increased exchange rate flexibility, fiscal consolidation, and tight monetary policy. The fiscal consolidation that Kenya undertook in recent years to address growing debt sustainability challenges, and which was interrupted by the pandemic, continued in 2022 and contributed to reducing external and internal imbalances.
“Fiscal consolidation plays a central role in supporting Kenya's macroeconomic foundations for inclusive and sustainable growth,” said Keith Hansen, World Bank Country Director.
Kenya's medium-term growth prospects remain strong as the economy continues to recover from multiple crises. Over the medium term, GDP growth is expected to remain around 5%, broadly in line with pre-pandemic trends and Kenya's estimated potential GDP growth. Real per capita income is expected to grow at around 3% over the medium term, and poverty is expected to return to its pre-pandemic downward trend.
“Robust GDP growth over the medium term is expected to benefit from reduced government crowding out through fiscal consolidation and will be driven by strong private investment,” said Naomi Mathenge, senior economist at the World Bank in Kenya. said.
However, the outlook may come with increased risks. External risks include weaker-than-expected growth in Europe, higher global commodity prices that could increase Kenya's import bill and the cost of controlling inflation, and further tightening of financial conditions in developed countries. It will be done. Domestic risks are primarily related to slowing spending pressures and tax efforts to reduce high living costs.
Although climate change is recognized as a major threat to Kenya's growth profile, global efforts to address climate change, particularly reducing greenhouse gas emissions, also present positive opportunities for Kenya's economy. This special focus section of his KEU looks at Kenya's opportunities in a decarbonized world. If Kenya maintains a low-carbon development path as it grows, it has the potential to seize the opportunities created by the global trend of economic decarbonization. Staying on a low-carbon path need not come at the expense of Kenya's efforts to accelerate growth, provided that path is aligned with increasing productivity and supporting inclusive development.
Press release number: 2023/079/AFE.
contact address
For Nairobi Vera Rosauer +254202936811 vrosauer@worldbank.org.
For Washington, Daniella van Leggelo-Padilla +1 (202) 473-4989 dvanleggelo@worldbank.org.
