A macro-fiscal analytic snapshot has been given in a joint report by IPF Kenya and Oxford Policy Management. It reveals a resilient growth trajectory amidst adversities. We delve into the key messages outlined in the report, exploring the nuanced impact on poverty, inflation, debt, fiscal consolidation, and the government’s strategic initiatives.

•  Resilience amidst shocks:

Kenya, like many nations, has weathered adverse shocks in recent years, yet its growth remains remarkably resilient. Hovering around a steady 5%, this growth has paved the way for consistent improvements in income per capita, positioning the country favourably on the global economic stage.

• Post-lockdown dynamics:

The repercussions of the 2020 lockdowns were felt strongly in Kenya, with poverty levels surging during that period. While there has been a reduction, the rural-urban divide remains evident, raising concerns about the slower pace of poverty alleviation in rural areas. Limited data beyond 2021 makes projections for 2023/24 challenging, but indications suggest a return to 2019 levels.

• Inflation challenges and fiscal implications:

Inflation remains a challenge with both policy and political implications in Kenya. Despite not reaching the extremes seen in some countries, inflation, peaking below 10%, has been a concern. Its impact on consumers, creditors, debtors, and the government, grappling with high nominal interest on new borrowing, necessitates vigilant policy management.

• Navigating debt risks:

Kenya’s debt position teeters on the edge of risk, highlighted by key ratios such as debt-to-GDP, debt service-to-revenue, and external debt service-to-exports. A looming concern is the US$2 billion Eurobond repayment due in June 2024. While market access remains, the potential for exorbitant interest rates (15-18%) underscores the urgency for alternative solutions. The recent IMF infusion of US$1 billion provides a lifeline, but challenges persist.

• The need for fiscal consolidation:

Fiscal consolidation has become a pressing need in Kenya, a necessity stemming from an unsustainable fiscal deficit in 2019. While growth proves resilient, revenue growth remains stagnant. To mitigate the deficit, spending growth has been curtailed, with debt interest claiming an increasing share of the expenditure pie.

• Unpacking the Medium-Term Revenue Strategy (MTRS):

The government’s Medium-Term Revenue Strategy (MTRS) aims to generate an additional 5% of GDP by 2026/27. However, the strategy lacks clarity on execution, hindering progress tracking. The absence of information on the contribution of each revenue measure impedes the assessment of their effectiveness.

• Declining spending and health budget challenges:

Non-interest spending and health spending per capita have experienced a downward trajectory since 2019/20. High debt, coupled with interest rates and a depreciating currency, has eroded discretionary fiscal space. Health spending cuts, both at the county and national levels, present challenges to public health infrastructure.

• Diminishing donor financing:

A concerning trend emerges as donor financing for healthcare dwindles, contributing to an overall reduction in development spending. This has repercussions for the broader socio-economic landscape, necessitating innovative solutions to fill the widening funding gap.

Key issues to monitor

As Kenya charts its course forward, several critical issues demand vigilant monitoring:

• The Eurobond settlement in June 2024, a decision with far-reaching fiscal implications.
• Uncertainties surrounding fiscal deficit management and its impact on future investment, expenditure, and borrowing.
• Risks associated with the privatisation of state-owned enterprises, emphasising the need for transparency, public participation, and parliamentary oversight.
• The implementation and effectiveness of the Medium-Term Revenue Strategy are crucial for sustainable revenue gains.
• The transformative impact of recent Universal Health Coverage laws, particularly the creation of the Social Health Insurance Authority and the repeal of the National Social Insurance Fund, warrant close scrutiny.

In conclusion, Kenya’s economic landscape in 2024 is marked by resilience, challenges, and strategic imperatives, necessitating a careful balance to secure a sustainable and prosperous future.