Kenya’s economy has begun recovering from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to increase from an annual average of 4.0% for 2019 to 2021, to 5.7% in 2022. Inflation is projected to increase from an annual average of 5.5% for 2019 to 2021, to 7.2% in 2022. The elevated inflation is caused by the recovery in aggregate demand and sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to decrease to an annual average of 5.4%. Meanwhile, inflation is projected to decrease to an average of 5.8% over the medium-term from 2023 to 2025.
The Government of Kenya’s debt has been steadily increasing since 2020. Kenya’s gross public debt is projected to increase from an annual average of 64.8% of GDP for 2019 to 2021, to 70.3% of GDP in 2022. The increase in public debt is largely due to the Government of Kenya implementing countercyclical fiscal expansion to support the economic recovery from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to narrow from an annual average of -7.9% of GDP for 2019 to 2021, to -6.9% in 2022. This shows the countercyclical fiscal stance taken by the government despite spending and further borrowing outpacing revenue growth. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -4.7% of GDP. Therefore, public debt is projected to decrease to an average of 67.5% of GDP over the medium-term from 2023 to 2025.
Kenya’s external sector was not negatively severely affected by the COVID-19 pandemic in 2020 but the sector has begun deteriorating due to the recovery in aggregate demand, which has raised demand for imports, and sanctions against Russia increasing the cost of crucial imports. Kenya’s current account deficit is projected to widen from an annual average of -USD 5.3 billion (approx. -5.1% of GDP) for 2019 to 2021, to -USD 6.7 billion (approx. -5.8% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow slightly to an annual average of -USD 6.6 billion (approx. -5.2% of GDP). This illustrates a persistent deteriorating in the current account balance due to the increased demand and rising cost of imports which is primarily driven by the impact of sanctions against Russia. Therefore, Kenyan authorities will have to take a proactive approach to macroeconomic management in order to maintain the KES strength and invest in further diversification of the country’s exports away from the continued reliance on raw agricultural and mineral commodities.
Kenya is scheduled to hold its national elections in August 2022 and the election campaigning cycle is currently underway. Incumbent President H.E. Uhuru Kenyatta will not be eligible for re-election since he is serving a second term in office using his peace and economic integration rhetoric. The current political climate remains relatively calm despite pressures to build on regional integration in the EAC for the benefit of all Kenyans. President H.E. Uhuru Kenyatta will also seek to play a more meaningful role in resolving conflicts and political tensions in some members state in the EAC and International Conference on the Great Lakes Region (ICGLR). The EAC recently welcomed the ascension of the Nairobi, Kenya. The DRC joins the EAC at the Common Market stage in the integration when they formally accede to the Treaty with a mechanism to integrate the DRC into the submissions of EAC to the African Continental Free Trade Area Agreement processes. This expands the EAC market considerably and Kenya will be well positioned to take advantage of this improved economic relations with the DRC. This remains the central aim in Kenya’s regional priorities as the incumbent Chair of the EAC and a member of COMESA and the ICGLR.
