and business environment (including by reducing corruption and excessive red KENYA Key conditions and tape), and enhancing access to finance. Kenya’s economy relies on tourism and challenges rainfed agriculture, and is vulnerable to climate change and extreme weather Table 1 2021 Kenya was making strong economic events such as the severe drought current- Population, million 55.0 progress prior to the COVID-19 pan- ly affecting the north-east of the country. GDP, current US$ billion 110.3 demic, with real GDP growing at an Over the past decade, climate-related an- GDP per capita, current US$ 2005.8 annual average rate of 5 percent and nual losses have been 3-5 percent of GDP, a 37.1 International poverty rate ($1.9) major achievements in human develop- despite Kenya’s negligible contribution to a 66.5 ment (the highest Human Capital Index global GHG emissions. Climate-related Lower middle-income poverty rate ($3.2) a 86.6 score in continental sub-Saharan Africa); priorities include phasing out the remain- Upper middle-income poverty rate ($5.5) Gini index a 40.8 in energy access and sustainability (ac- ing fossil fuel power supply, increasing School enrollment, primary (% gross) b 103.2 cess to electricity almost doubled to 75 tree-cover, adopting climate-smart agricul- b 66.7 percent of households in 2018, based on ture, and making the transportation and Life expectancy at birth, years a nearly 90 percent green energy mix); waste management systems more efficient Total GHG Emissions (mtCO2e) 77.2 and in poverty reduction (the share of and sustainable. Source: WDI, Macro Poverty Outlook, and official data. the population living below the $1.90 a a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2016); Life expectancy day poverty line fell from 45.2 percent (2019). in 2009 to 34.4 percent in 2019). Kenya aspires to become an upper middle-in- Recent developments come country by 2030, which will re- Kenya’s economy was severely disrupted quire a shift away from the economy’s Whilst the pandemic stalled growth in by the COVID-19 shock but it has recent reliance on debt-financed public 2020, the economy has recovered, and investment and towards more private output is well above pre-pandemic levels. staged a strong recovery, and the pover- investment to sustainably generate jobs The economy grew by an estimated 6.7 ty rate is projected to fall below its pre- and income growth. percent in 2021, supported by a strong pandemic level in 2022. However, pro- To support structural transformation to- recovery of the services sector (Figure longed drought in the north-east has wards a more inclusive and resilient pri- 1), particularly education, and growth in vate sector-led economy, it is critical to manufacturing and construction. Agricul- caused severe hardship in affected areas. reinforce fiscal consolidation, since fiscal tural output, however, contracted by 1.5 Progress on fiscal consolidation will be space has eroded and debt risks have percent in 2021, due to below-average essential to achieve a durable, private mounted. Measures are also needed to rains. Disruption caused by the omicron sector-led recovery, and to restore space strengthen productivity and private in- variant of COVID-19 led to some moder- for pro-poor spending and investment in vestment, by addressing economic distor- ation of economic activity in the fourth tions (including those which arise from quarter of 2021. human capital. Monetary policy remained accommoda- an uneven playing field between the pri- vate sector and a large and inefficient tive. Inflation pressures remained con- SOE sector), improving the regulatory tained overall but the prices of some staple FIGURE 1 Kenya / Real GDP growth and sectoral FIGURE 2 Kenya / Actual and projected poverty rates and contributions to real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 8 100 160000 90 140000 6 80 120000 70 4 100000 60 50 80000 2 40 60000 30 0 40000 20 10 20000 -2 2020 2021 2022 2023 2024 0 0 Net taxes Services 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Industry Agriculture International poverty rate Lower middle-income pov. rate Real GDP growth (percent) Upper middle-income pov. rate Real priv. cons. pc Sources: Kenya National Bureau of Statistics and World Bank. Source: World Bank. Notes: see Table 2. MPO 47 Apr 22 products have risen significantly, affected expected to narrow to 4.4 percent of by global supply chain challenges and be- GDP by FY2023/24, through a mix of low-average rains. The below-average Outlook expenditure restraint and revenue mea- rains have also resulted in deteriorating sures, including further rationalization food security, especially in the north and The course of the pandemic remains key to of tax expenditures and introduction of east of Kenya which has been affected by the outlook but increasing COVID-19 vac- a digital tax. Public debt is expected to a severe drought (USAID’s Famine Early cinations will help to mitigate the risks. decline as a share of GDP, benefiting from Warning Systems Network). The global fu- The government targets to vaccinate all economic growth, fiscal consolidation and el and food price shocks caused by Rus- adults by end-2022 and with the improve- reduced borrowing costs due to increases sia’s invasion of Ukraine will increase im- ment in vaccine supply, the proportion of in concessional debt in the financing mix. port costs and prices, including of Kenya’s adults fully vaccinated increased from 15.3 Lower domestic borrowing by govern- significant net fuel and wheat imports, percent in December 2021 to 27.8 percent ment will create more room for banks to fi- though the duration and magnitude of the in February 2022. nance private sector investment. price effects are highly uncertain. With GDP growth projected to average 5.2 Domestic risks facing the outlook stem The fiscal outturn in the first half (H1) of percent over 2022–24, growth in real per from election-related disruptions and ad- FY2021/22 improved, driven largely by the capita incomes will help reverse the rising verse weather conditions (currently af- economic recovery, a strong rebound in rev- poverty rates caused by the pandemic. fecting north-eastern Kenya). External enues, and new tax policy and administra- Poverty is expected to fall to 33.4 percent uncertainty will stem from re-intensifi- tion measures implemented under the gov- in 2022, below the pre-crisis level of 34.4 cation of the pandemic, and the global ernment’s medium-term fiscal consolida- percent (2019). The baseline projections as- price and trade shocks emanating from tion program. Total expenditures have re- sume that normal rains support good agri- the Russia-Ukraine conflict with poten- mained broadly steady at 10.8 percent of cultural harvests to drive food processing, tially adverse impacts on inflation, the GDP in H1, with an increase in recurrent sustain export growth, help anchor infla- current account balance, and the fiscal spending being offset by reduced develop- tion expectations, and support house- deficit (depending on extent to which ment spending and below-target transfers holds’ consumption. global oil price increases are passed on to county governments. As a result, the fiscal Progress on fiscal consolidation will bol- to retail fuel consumers). deficit in H1 FY2021/22 decreased to 2.5 per- ster confidence and resources for private cent of GDP from 3.2 percent a year earlier. sector investment. The fiscal deficit is TABLE 2 Kenya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -0.3 6.7 5.0 5.2 5.5 Private Consumption 4.9 -2.7 7.3 5.5 5.6 5.8 Government Consumption 7.0 4.3 4.2 4.9 3.6 3.5 Gross Fixed Capital Investment 3.8 3.4 6.4 4.1 6.7 7.6 Exports, Goods and Services -3.2 -8.2 8.0 6.8 7.1 7.4 Imports, Goods and Services 1.8 -8.5 7.5 7.0 8.0 8.3 Real GDP growth, at constant factor prices 5.2 0.3 6.7 5.0 5.2 5.5 Agriculture 2.6 4.8 -1.5 3.6 3.8 4.2 Industry 3.4 4.0 6.6 3.5 4.0 4.3 Services 6.7 -2.2 9.6 5.9 6.0 6.2 Inflation (Consumer Price Index) 5.2 5.3 6.4 6.0 5.5 5.0 Current Account Balance (% of GDP) -5.3 -4.6 -5.5 -6.0 -5.5 -5.0 Net Foreign Direct Investment (% of GDP) 0.9 0.5 0.2 0.6 0.8 0.9 Fiscal Balance (% of GDP) -7.4 -7.9 -8.2 -7.5 -5.5 -4.3 Debt (% of GDP) 59.5 65.8 68.2 68.0 66.8 63.9 Primary Balance (% of GDP) -3.2 -3.9 -3.7 -2.8 -0.6 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 34.4 35.7 34.3 33.4 32.5 31.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 65.1 65.8 65.1 64.7 64.2 63.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 85.9 86.2 85.8 85.6 85.3 85.0 GHG emissions growth (mtCO2e) 3.8 2.2 2.2 2.1 2.5 2.4 Energy related GHG emissions (% of total) 41.2 39.8 42.1 43.0 44.4 45.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2005-IHBS and 2015-IHBS.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2005-2015) with pass-through = 1 based on private consumption per capita in constant LCU. MPO 48 Apr 22