Kenya’s economy is under strain from rising public debt, tighter credit conditions, escalating borrowing costs, and shifting global supply chains, posing significant challenges to growth, competitiveness, and financial stability.
These factors are placing increased pressure on the country’s competitiveness, debt sustainability, and growth trajectory. Raphael Agung, Group Director for Global Markets and Chief Economist at NCBA Group, unpacked these challenges and emerging opportunities in a live interview on CNBC Africa on Wednesday at 12:30 PM
Global trade shifts threaten export competitiveness
According to Agung, Kenya’s traditional export strengths are primarily in agriculture, tea, coffee, and textiles. It’s being challenged by evolving global trade regimes, particularly those shaped by U.S. policies.
He noted that the African Growth and Opportunity Act (AGOA), which Kenya has long relied on for preferential access to U.S. markets, is set to expire at the end of this month. With that, Kenya will face a tariff increase of about 10 per cent, potentially weakening its export position relative to global competitors.
“Our competitiveness in many ways is dependent on the financial and trade environment we inherit from the external side. With the new tariffs and reciprocal trade policies proposed by the Trump White House, Kenya needs urgent reforms to keep its industry side competitive,” said Agung.
Regional resilience, but policy volatility remains a risk
While both Kenya and neighbouring Tanzania maintain tariff levels around 10 per cent, which Agung argues is still competitive regionally, he cautioned that policy volatility from major global economies could disrupt financing and trade.
He emphasised the need for Kenya to strengthen both its monetary and fiscal policy coordination to cushion against such shocks. “Manipulating both sides of policy, monetary and fiscal, will be necessary to make the country more competitive,” he stated.
Kenya reduces external financing dependence
Addressing concerns about the country’s exposure to a potential financing squeeze, Agung pointed to strategic decisions in the 2025/2026 budget aimed at reducing reliance on external debt.
The government has opted to prioritise domestic financing and concessional borrowing to avoid shocks experienced in 2022 and 2023. “The budget framework this year is very mindful of external risk. The country was wise to reduce reliance on external financing,” Agung said.
He also acknowledged that global interest rate movements, particularly from the U.S. Federal Reserve, will impact Kenya’s debt servicing costs.
However, he noted recent liability management operations, including refinancing of the 2024 Eurobond, as steps in the right direction.
IMF support is still critical
Kenya is currently out of an IMF programme, but Article IV consultations are scheduled for September. Agung suggested it would be beneficial for Kenya to re-engage with the IMF, given the stabilising role it played during the 2022-2023 crisis.
“There’s an understanding from authorities that returning to some sort of IMF programme is part of the plan,” he said, citing improved fiscal positioning and intentions to manage future debt maturities.
Balancing the fiscal deficit and investment
Kenya’s fiscal deficit remains high, but Agung expressed optimism about the government’s commitment to fiscal consolidation. He said the ideal deficit target is around 3.5 per cent, and while Kenya is still off that mark, there’s clear intent and political will to reach it.
The country has struck the right note in terms of policy intent,” he added, saying that Kenya is better positioned now to manage external borrowing and maintain credit availability for the private sector.
As Kenya steers through complex internal and external financial pressures. Agung remains cautiously optimistic that the country is laying the groundwork for more sustainable and competitive economic growth.