World Bank’s 2025 economic outlook for Kenya

Kenya's macroeconomic environment experienced improvements in 2024, with a tighter policy framework contributing to stability despite multiple economic shocks. CNBC Africa's Aby Agina engaged in a conversation with World Bank Senior Economist, Naomi Mathenge, on the recently released Kenya Economic Update, shedding light on the country's economic outlook. The report highlighted several key takeaways, indicating positive changes in the macroeconomic environment. Inflation rates reduced significantly from 9.6% to 2.8% in November, while the exchange rate stabilized following the successful issuance of the Eurobond. Additionally, the current account deficit saw a significant decline, pointing towards an overall improved macro environment. However, concerns were raised regarding economic growth, which although robust, showed signs of slowing and not producing sufficient quality jobs. Both the agricultural and services sectors were noted to be resilient but at risk of further deceleration, necessitating fiscal and structural reforms to sustain growth and job creation. Another key issue highlighted in the report was the pressure on revenues, with underperformance affecting fiscal consolidation efforts. The need for economic inclusion, specifically through Women Economic Empowerment, was emphasized as vital for accelerating inclusive growth. Challenges facing the economy were attributed to structural issues, governance problems, export sector performance, high fiscal vulnerabilities, and the need for sustained inclusive growth creating adequate jobs for all. Prescriptions for tackling these challenges involved addressing fiscal structural imbalances, steering towards job-generating sectors like manufacturing, boosting productivity and competitiveness, diversifying export products, and improving revenue missions and expenditure strategies. Ample attention was also directed towards enhancing women's economic participation through educational opportunities, reducing teenage pregnancies, facilitating job transitions, and preventing gender-based violence. Comparatively, Kenya's projected growth rate for 2024 was revised downwards to 4.7%, reflecting subdued investor confidence, weather-related shocks, and reduced public investments due to fiscal consolidation. Despite challenges, Kenya's 4.7% growth rate exceeded the sub-Saharan Africa average of 3%. However, peers like Uganda, Rwanda, and Tanzania outperformed Kenya, showcasing the need for additional measures to boost growth and maintain momentum. The medium-term growth outlook for 2025 and 2026 stands at around 5% and 5.1%, respectively, indicating a resilient economy seeking sustained growth through addressing key challenges. Naomi Mathenge's insights shed light on the current status and future trajectory of Kenya's economy, underscoring the importance of strategic reforms and inclusive policies to drive economic prosperity.