Kenya’s economy rebounded strongly in 2023, growing at 5.6% compared to 4.8% the previous year, according to the government’s latest Quarterly Economic and Budgetary Review. However, the review also revealed concerning fiscal trends that could pose risks going forward.
“The economy is estimated to have grown by 5.6% in 2023, up from 4.8% in 2022,” the report stated. “This growth was supported by a rebound in agriculture, which had faced two consecutive years of output decline due to a prolonged drought, and the continued strength and resilience of the services sectors.”
Inflation remained within the government’s target range of 5±2.5% for the first three quarters of the 2023/24 fiscal year, declining to 5.7% in March 2024 from 9.2% a year earlier. This easing was “largely driven by the easing of food and energy prices, pass-through effects of exchange rate appreciation and the impact of monetary policy tightening,” the review noted.
However, macroeconomic gains were offset by fiscal challenges. Despite a revenue collection target of KES 2,126.4 billion for the July 2023-March 2024 period, the government fell short by KES 208.1 billion “mainly due to shortfall in taxes/ordinary revenue.” Meanwhile, total expenditure and net lending amounted to KES 2,638.8 billion against a target of KES 2,787.7 billion.
“The resultant below target expenditure of KES 148.9 billion is mainly attributed to below target absorption recorded in development expenditures and transfers to County Governments,” the review explained.
This dynamic led to a fiscal deficit excluding grants of KES 720.5 billion, or 4.5% of GDP as of end-March 2024. To bridge the gap, the government resorted to external financing of KES 113 billion and net domestic borrowing of KES 386.4 billion for the period.
“The stock of gross domestic debt increased by KES 625.9 billion from KES 4,631.1 billion in March 2023 to KES 5,257 billion in March 2024,” the report revealed. “The total external debt stock, including the International Sovereign Bond, stood at KES 5,163.4 billion by the end of March 2024.”
The government acknowledged some of the fiscal pressures, noting it “serviced guaranteed debt of KES 17.4 billion on behalf of Kenya Airways” for the period. How the administration manages rising debt levels while maintaining growth-supportive policies will be a key focus for markets and analysts in the coming months.
