Kenya’s economy shows resilience amid fiscal challenges

Chris Kiptoo, Principal Secretary for National Treasury 

Kenya’s economy has demonstrated resilience despite facing multiple external and domestic shocks, according to National Treasury Principal Secretary (PS) Chris Kiptoo. Speaking at the DTB Bank Economic and Sustainability Forum on Thursday, Kiptoo emphasized the country’s ability to overcome economic hurdles, citing a diversified economy and recent fiscal measures that have stabilized key economic indicators.

“Kenya’s economy is strong and resilient. We have always come out of the challenges we face, whether they be climate shocks or political events,” Kiptoo stated.

Kiptoo acknowledged the increasing expenditure pressures since the 2010 constitutional shift, which led to higher financial allocations to counties and critical sectors such as education and healthcare. The education sector alone now accounts for nearly Ksh 700 billion of the Ksh 4 trillion national budget, with additional pressures from infrastructure and security demands.

The Treasury PS highlighted that interest payments on Kenya’s debt had surged to nearly Ksh 700 billion but credited recent government interventions for reducing debt vulnerability. “Debt as a percentage of GDP has declined from 75 percent to approximately 64-65 percent due to stabilization measures, including our decision to restructure the Eurobond,” he noted.

In a significant move last year, the government issued and repurchased $1.5 billion of a $2 billion Eurobond, a move Kiptoo described as a “game changer” in calming market speculation and stabilizing the Kenyan shilling. The local currency has appreciated from Ksh 160 to Ksh 129 per US dollar, maintaining relative stability for the past year.

Kenya’s foreign exchange reserves have also seen improvement, increasing to $10 billion—equivalent to 5.1 months of import cover—up from levels below four months when Kiptoo took office. This buffer, largely supported by diaspora remittances of nearly $5 billion annually, has strengthened Kenya’s ability to withstand external shocks.

Meanwhile, inflation has moderated, contributing to improved purchasing power for consumers. “A 2kg packet of sugar and maize has seen significant price reductions. We have improved monetary policy, ensuring stability in exchange rates, reduced interest rates, and contained inflation,” Kiptoo explained.

Despite progress, Kenya continues to grapple with a budget deficit. While the country reduced its budget from Ksh 4 trillion to Ksh 3.8 trillion in the last financial year, the new supplementary budget has increased allocations to Ksh 3.9 trillion, with projections of Ksh 4.2 trillion for the next fiscal year.

The Kenya Revenue Authority (KRA) has surpassed collection targets in recent months, bolstered by tax measures passed by Parliament. Kiptoo expressed optimism that revenue collection will improve further, helping to balance fiscal pressures.

“We need to focus on the budget deficit as a percentage of GDP, which is moving from 5.2 percent last year toward a more sustainable level below 5 percent,” he added.

On the economic growth front, Kiptoo addressed concerns over slow expansion in the manufacturing sector, with some companies relocating operations to Rwanda. He attributed this to competitiveness challenges, including high labor and electricity costs.

However, Kiptoo cited ongoing efforts to boost local industries, particularly the leather sector, through investments in facilities such as the Kenani Leather Factory. “Kenya ranks third in Africa in livestock production and we are focusing on value chains to maximize our leather industry’s potential,” he said.

The PS also noted renewed investor interest, mentioning the expected revival of Flospar mining operations under new ownership as a positive development.

Kiptoo expressed confidence in Kenya’s economic trajectory, supported by public-private partnerships (PPPs) and improved credit ratings. “Moody’s has revised our outlook from negative to positive, and Standard & Poor’s has also noted our progress,” he said.

While challenges remain, Kenya’s economic stability measures appear to be yielding results, positioning the country for sustained growth and resilience in the coming years.