The country has made significant political and economic reforms that have contributed to sustained economic growth, social development, and political stability gains over the past decade. However, its key development challenges still include poverty, inequality, youth unemployment, transparency and accountability, climate change, continued weak private sector investment, and the vulnerability of the economy to internal and external shocks. Furthermore, Kenya’s robust growth before the COVID-19 pandemic was largely driven by the public sector, resulting in debt vulnerabilities which have exacerbated amid tightening global financing conditions.
Kenya’s growth performance over the past two decades has been strong. The economy achieved broad-based growth, averaging 4.8% per year between 2015 and 2019, similar to the Lower Middle-Income Country average of 4.8 and above the Sub-Saharan Africa average of 2.4%.
In 2020, the COVID-19 pandemic shock hit the economy hard, disrupting international trade and transport, tourism, and urban services activity. Fortunately, the agricultural sector, a cornerstone of the economy, remained resilient, helping to limit the contraction in GDP to only 0.3%. The pandemic also reversed Kenya’s hard-earned gains in poverty reduction. In 2021, the economy staged a strong recovery, growing at 7.5%, although some sectors, such as tourism, remained under pressure.
Kenya’s economy continues to show considerable resilience in the face of recent shocks, including the lasting economic effects of the COVID-19 pandemic, the global impacts of the war in Ukraine, two consecutive years of droughts, tight monetary policy, and depreciation of the currency. Kenya’s real GDP expanded at an estimated 5.4% in 2023 from 4.8 % in 2022. The agricultural sector experienced a stronger than expected rebound after two years of drought. The onset of the rains led to improved crop yields and livestock health, which supported the resumption of a downward trajectory for poverty rates. The poverty rate ($2.15 international poverty rate) is projected to have declined from 35.8% in 2022 to 35.1% in 2023.
Kenya’s growth is projected to reach 5.2% on average during 2024-2026, mainly driven by the private sector as business confidence strengthens and the public sector continues to scale back. Kenya’s growth is also expected to benefit from the implementation of the recently signed trade agreements under the European Union Economic Partnership Agreement, African Continental Free Trade Area.
Although the economic outlook is broadly positive, it is subject to elevated uncertainty. The failure to achieve fiscal consolidation targets could exacerbate Kenya’s debt vulnerabilities, especially due to the high-debt service repayments. Climate hazards could resume inflationary pressures and food insecurity, affecting growth. Lower than anticipated growth in developed countries could undercut ongoing recovery in tourism, exports, and remittances. Elevated commodity prices would further tighten financial conditions, weaken external balances, and impact inflation.
World Bank support to Kenya includes budget support to help close the fiscal financing gap while supporting reforms that help advance the government’s inclusive growth agenda.
In addition to aligning the country’s long-term development agenda to Kenya’s Vision 2030?which aims to transform Kenya into a competitive and prosperous country with a high quality of life?the government’s bottom-up economic model prioritizes agriculture, healthcare, affordable housing, micro and small enterprises, and the digital and creative economy.
Last Updated: Apr 08, 2024
