Special Focus on Poverty and Distributional Impacts of Fiscal Policy in Kenya © 2025. World Bank Group This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. 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TABLE OF CONTENTS ABBREVIATIONS ........................................................................................................................................................................................................................................................... i ACKNOWLEDGEMENTS........................................................................................................................................................................................................................................... ii EXECUTIVE SUMMARY............................................................................................................................................................................................................................................. iii THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments ............................................................................................................................................................................................................... 2 1.1 The global and regional economy .................................................................................................................................................................................................. 2 1.2 Recent developments in Kenya ........................................................................................................................................................................................................ 2 1.3 The real economy ...................................................................................................................................................................................................................................... 3 1.4 External sector.............................................................................................................................................................................................................................................. 5 1.5 Monetary and financial-sector performance ........................................................................................................................................................................... 7 1.6 Fiscal developments ................................................................................................................................................................................................................................ 8 2. Outlook and Risks.................................................................................................................................................................................................................................................... 10 2.1 Outlook ............................................................................................................................................................................................................................................................ 10 2.2 Risks to the outlook and policy recommendations ............................................................................................................................................................. 13 SPECIAL FOCUS 3. Poverty and Distributional Impacts of Fiscal Policy in Kenya................................................................................................................................................... 16 3.1 Kenya's economic growth has not sufficiently reduced poverty................................................................................................................................. 16 3.2 How do taxes, subsidies and social spending redistribute income?.......................................................................................................................... 18 3.3 What is the overall impact of taxes and spending on poverty and inequality?.................................................................................................. 29 3.4 What improvements to Kenya’s fiscal policy could enhance its effectiveness in reducing poverty and inequality?.................. 34 LIST OF FIGURES Figure 1: Number of people employed by in the formal sector, and growth in total employment, 2010-2024................................................. 3 Figure 2: Share of wage employment, 2010-2024...................................................................................................................................................................................... 3 Figure 3: Cross-country share of informal employment, 2024............................................................................................................................................................ 4 Figure 4: Growth in wage employment between the private and public sector, 2019-2024......................................................................................... 4 Figure 5: Growth in wage employment within the private and public sector, 2019-2024............................................................................................... 4 Figure 6: Growth in wage employment by industry in the services sector, 2019-2024...................................................................................................... 4 Figure 7: Average monthly real wages, 2005-2024.................................................................................................................................................................................... 4 Figure 8: A tight monetary policy and high interest rates moderated domestic demand in 2024............................................................................. 5 Figure 9: Industrial production declined, while agriculture and services showed resilience in 2024........................................................................ 5 Figure 10: Economic activity in industry shows signs of recovery in early 2025..................................................................................................................... 5 Figure 11: Formal wage employment has slowed ................................................................................................................................................................................... 5 Figure 12: The current account deficit continued to narrow............................................................................................................................................................... 6 Figure 13: Financial inflows rebounded amid easing global conditions and improved domestic stability........................................................... 6 Figure 14: The Kenya Shilling remained stable............................................................................................................................................................................................. 6 Figure 15: Reserve buffers are adequate and remain above the CBK’s statutory minimum............................................................................................ 6 Figure 16: Inflation moderated below the CBK’s target mid-point.................................................................................................................................................. 7 Figure 17: Credit to private sector continued to contract..................................................................................................................................................................... 8 Figure 18: NPLs rose but the banking sector remained stable........................................................................................................................................................... 8 Figure 19: Revenue underperformance continues to undermine fiscal consolidation efforts...................................................................................... 9 Figure 20: Debt-service costs remain elevated............................................................................................................................................................................................ 9 Figure 21: Public debt reduced although vulnerabilities remain..................................................................................................................................................... 9 Figure 22: Domestic yields have declined following easing of monetary policy and lower risk perception....................................................... 9 Figure 23: Poverty remains stubbornly high, and despite some gains, inequality remains relatively high........................................................... 16 Figure 24: CEQ framework for fiscal incidence analysis.......................................................................................................................................................................... 18 Figure 25: Incidence and concentration share of PIT............................................................................................................................................................................... 21 Figure 26: Kenya’s PIT average revenue remains above regional peers, but has declined over the last decade................................................ 21 Figure 27: Incidence and concentration share of VAT............................................................................................................................................................................. 22 Figure 28: Incidence and concentration share of excise duty............................................................................................................................................................ 23 Figure 29: VAT as a percentage of GDP............................................................................................................................................................................................................. 24 Figure 30: Most direct cash transfer programs are well-targeted to poorer households, but there is room for improvement ��������������� 25 Figure 31: In-kind education benefits are pro-poor at lower levels but less equitable in tertiary education...................................................... 26 Figure 32: In-kind health benefits are pro-poor.......................................................................................................................................................................................... 27 Figure 33: Subsidies mostly benefit middle- and upper-income households......................................................................................................................... 28 Figure 34: Most Kenyan households benefit from the tax and transfer system...................................................................................................................... 29 Figure 35: Kenya’s tax and transfer system reduces inequality but slightly increases poverty...................................................................................... 30 Figure 36: Secondary education transfers have the greatest impact on poverty reduction, while PIT most effectively reduces inequality.................................................................................................................................................................................................................................. 31 Figure 37: Direct transfers are more cost effective at reducing both poverty and inequality than subsidies...................................................... 31 Figure 38: Kenya could achieve stronger distributional impacts..................................................................................................................................................... 34 Figure 39: Raising transfers to KSh 3,000 has limited impact on poverty and inequality, signaling benefit levels are too low ��������������� 35 LIST OF TABLES Table 1: Medium term growth projections 2022-27 (percent, unless otherwise stated).................................................................................................. 12 Table 2: Kenya government revenue collection, 2022/23.................................................................................................................................................................... 19 Table 3: Kenya government social spending, 2022/23........................................................................................................................................................................... 20 Table 4: Illustrative policy simulations – Well-targeted VAT reforms can minimize poverty and inequality impacts...................................... 36 LIST OF BOXES Box 1: Recent trends in employment and wages...................................................................................................................................................................................... 3 Box 2: Fiscal Incidence Analysis: CEQ Framework...................................................................................................................................................................................... 17 Box 3: Improving Kenya’s PIT framework......................................................................................................................................................................................................... 21 Box 4: Overview of Kenya’s VAT system............................................................................................................................................................................................................. 23 Box 5: The gendered impacts of Kenya’s fiscal policy.............................................................................................................................................................................. 32 Box 6: The redistributive impact on children................................................................................................................................................................................................ 33 ABBREVIATIONS ASAL Arid and Semi-arid Lands KCHS Kenya Continuous Household Survey BBL Barrel of Crude Oil KIHBS Kenya Integrated Household Budget Survey BETA Bottom-up Economic Transformation Agenda KNBS Kenya National Bureau of Statistics CBK Central Bank of Kenya KSh Kenya Shilling CBR Central Bank Rate LFS Labour Force Statistics CEQ Commitment to Equity MTRS Medium-term Revenue Strategy CIT Corporate Income Tax NICHE Nutrition Improvement through Cash and Health Education COMESA East African Community NPLs Non-performing Loans CT-OVC Orphans and Vulnerable Children OPCT Older Persons' Cash Transfer EAC East African Community PAYE Pay As You Earn EMDEs Emerging Market and Developing Economies PIT Personal Income Tax FDI Foreign Direct Investment PMI Purchasing Managers’ Index Forex Foreign Exchange PPP Purchasing Power Parity FY Financial Year PWSD-CT Persons with Severe Disabilities Cash Transfer GDP Gross Domestic Product Q1,Q2,Q3,Q4 First Quarter, Second Quarter, GHG Greenhouse Gas Third Quarter, Fourth Quarter GOK Government of Kenya US United States H1, H2 First Half, Second Half T-bills Treasury Bills HSNP Hunger Safety Net Program UNICEF United Nations Children's Fund ICT Information and Communication VAT Value Added Tax Technology y/y Year-on-Year ILOSTAT International Labour Organization Department of Statistics May 2025 | Edition No. 31 i ACKNOWLEDGEMENTS The Kenya Economic Update (KEU) is a series of World Bank reports produced twice a year that assesses recent economic and social developments and prospects in Kenya, and places these in a longer-term and global context. Through special topics, the KEU also examines selected policy issues and medium-term development challenges in Kenya. It is intended for a wide audience, including policymakers, business leaders, financial-market participants, and the community of analysts and professionals engaged in Kenya’s changing economy. The production of the KEU is led by the Macroeconomics, Trade and Investment (MTI) Global Practice team for Kenya. The first section—Recent Economic Developments, Outlook and Risks—was prepared by Naomi Mathenge, Angélique Umutesi, Jorge Tudela Pye, and Stanley Mutinda of the MTI team. The second section—Special Topic on Poverty and Distributional Impacts of Fiscal Policy in Kenya—was developed by Precious Zikhali, Prof. Damiano Manda, Yared Seid, and Nduati Kariuki from the Poverty and Equity Global Practice, with contributions from Naomi Mathenge and Angélique Umutesi. This special topic summarizes key insights from a collaborative analytical and capacity building initiative between the World Bank, UNICEF, Kenya Institute for Public Policy Research and Analysis (KIPPRA), Kenya National Bureau of Statistics (KNBS), and Africa Centre for Excellence for Inequality Research (ACEIR) at the University of Nairobi, aimed at assessing the poverty and redistributive impacts of Kenya’s fiscal policy. The collaboration also benefited from inputs across several government departments. Vera Rosauer and Keziah Muthembwa managed communication and dissemination, while Robert Waiharo helped with the design. Anne Khatimba provided logistical assistance during the preparation of this report. The report was prepared under the overall guidance of Abha Prasad (Practice Manager, MTI), Rinku Murgai (Practice Manager, Poverty and Equity), Marek Hanusch (Program Leader, Equitable Growth, Finance and Institutions for Kenya, Rwanda, Somalia, and Uganda), Tom Bundervoet (Lead Economist, Poverty and Equity), Hassan Zaman (Regional Director for Eastern and Southern Africa), Qimiao Fan (Division Director for Kenya, Rwanda, Somalia, and Uganda), and Anne Margareth Bakilana (Manager, Operations for Kenya, Rwanda, Somalia, and Uganda). The report benefited from excellent peer reviews from Andrew Blackman (Senior Economist, EAEM2) and Alan Fuchs (Lead Economist, EMNPV) as also from valuable regular discussions with officials at the National Treasury, Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics and the International Monetary Fund. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory, or the endorsement or acceptance of such boundaries. For questions about this report please email nmathenge@worldbank.org. For information about the World Bank and its activities in Kenya, please visit: https://www.worldbank.org/en/country/kenya ii May 2025 | Edition No. 31 EXECUTIVE SUMMARY The global economic context improved modestly in increase in core and non-core inflation but remained 2024, supported by easing inflation and a rebound below the mid-point of the Central Bank of Kenya (CBK) in global trade. Global growth remained resilient target range. Credit to the private sector continued to and is projected to hold steady through 2026, despite fall driven by higher interest rates, weakening demand geopolitical tensions and policy uncertainty. Sub- and the effects of exchange-rate valuation. The banking Saharan Africa is showing resilience amidst easing sector remains stable despite rising non-performing financial conditions and global uncertainties, with loans (NPLs). private consumption and investment driving growth amid greater debt vulnerabilities in many countries. Kenya’s fiscal policy challenges are multifaceted and Growth picked up in 2023 and in 2024 and is projected have significant implications for the country’s economic to strengthen through 2026. However, efforts to narrow stability and growth. During the first half (H1) of the the fiscal deficit, high debt burdens and elevated financial year (FY) 2024/25, Kenya struggled to deliver borrowing costs continue to constrain government- on its fiscal policy commitments as seen in low revenue spending in the region. growth and increased expenditure that undermined fiscal consolidation efforts. Total revenue and grants as a Kenya’s economy has slowed despite several share of GDP declined to 7.9 percent from 8.2 percent in improving macroeconomic indicators. Real gross H1 of FY2023/24. Tax revenue fell short of target— value domestic product (GDP) grew by 4.7 percent in 2024, a added tax (VAT) collection by 0.3 percentage points and decline from 5.7 percent in 2023 as the economy faced income tax by 0.2 percentage points. At the same time, multiple challenges, including floods, high interest expenditure pressures have persisted, with increased rates, and subdued business sentiment following spending on debt servicing. Against the fiscal year target protests that rocked the country in 2024. The industry of Kenya Shilling (KSh) 27 billion (0.2 percent of GDP) for sector slowed due to a weakening construction sub- subsidies, the government's expenditure on subsidies sector, though manufacturing has provided some in H1 2024/25, particularly for agricultural subsidies, cushion. The agricultural and service sectors remained was KSh 80.1 billion (0.5 percent of GDP) which is well strong, supported by good weather and lower inflation. above the targeted amount. Accumulated pending bills Tight monetary policy and elevated interest rates remain a fiscal risk and account for 3.1 percent of GDP. moderated the growth of private consumption while These challenges necessitate coordinated policy efforts the contribution of investment to growth remained to enhance revenue mobilization, improve expenditure sluggish as reflected in low credit growth and declining efficiency, and manage debt vulnerabilities to ensure industrial production. sustained economic growth and stability. Planned policies to support expenditure rationalization include The external sector showed improvement, driven by continued containment of the wage bill and mobilizing recovering exports and rising financial inflows. The funds for major infrastructure projects through public- current account deficit narrowed to 3.1 percent of GDP private partnerships. in the 12 months to February 2025 from 3.3 percent in 2024, driven by an improvement in exports of goods and Increased domestic borrowing is crowding out private- services, and continued resilience of remittance inflows. sector lending. Despite the decline in domestic yields Foreign direct investment (FDI) and other financial inflows due to easing monetary policy, the larger-than-targeted grew alongside foreign exchange (forex) reserves, which fiscal deficit and low external financing disbursements remained above the four-month import cover threshold. in H1 FY2024/25 pushed domestic borrowing above its target and above the previous year’s level of borrowing. A tighter monetary policy and moderation in global Public debt as a percentage of GDP has reduced but inflation have contributed to a decline in inflation. remains high, with debt-servicing costs constituting Inflation declined to 4.1 percent in April 2025 from 5.0 a significant portion of revenue (~38 percent) in H1 percent in April 2024, supported by a decline in non-core FY2024/25. Interest payments are estimated at 5.7 inflation. However, month on month, inflation increased percent of GDP in FY2024/25, higher than the 5.3 percent slightly compared to March 2025 driven by a slight incurred in FY2023/24. May 2025 | Edition No. 31 iii Executive Summary Kenya’s real GDP is expected to pick up gradually in the this endeavor, providing critical insights into how tax medium term with the external sector also projected and spending measures can be leveraged not only for to remain stable in the medium term. Real GDP growth macroeconomic stability, but also to advance equity and is projected to increase from 4.5 percent in 2025 to about shared prosperity. Against this backdrop, this Economic 5.0 percent in 2026–27. This is a downward revision by Update assesses the poverty and distributional impacts 0.4 percentage points in 2025 from the December 2024 of government taxation and spending through a fiscal forecast amid real interest rates that are still elevated incidence lens. Specifically, it seeks to answer three key relative to historical averages. This growth will be driven questions: (i) How do taxes, subsidies, and social spending by resilient agriculture, steady services, and a gradual redistribute income? (ii) What is their overall impact improvement in industry. However, lending rates are on poverty and inequality? (iii) What improvements to expected to decline further in 2025, while private sector Kenya’s fiscal policy could enhance its effectiveness in credit growth is projected to recover, spurring growth in reducing poverty and inequality? key sectors. On the external sector, the current account deficit is expected to remain stable, underpinned by Kenya’s fiscal system reduces inequality, but its impact increasing exports and re-exports of goods and services on poverty remains limited. In 2022, the country’s in the medium term. tax and transfer system reduced income inequality— measured by the Gini index—by 4.6 points, largely due The economic outlook faces several downside risks, to in-kind benefits in health and education. However, the including fiscal challenges, weather, and external system’s effect on poverty is less favorable: the net impact shocks. Major concerns include missing revenue and fiscal of taxes, subsidies, and transfers increases poverty by 2.7 consolidation targets, delays in implementing essential percentage points. This is primarily because the limited reforms, and high levels of public debt. These issues could coverage and value of cash transfers fail to offset the tax erode investor confidence, increase borrowing costs, and burden borne by poor and vulnerable households. reduce fiscal space for development projects. Extreme weather events threaten agricultural performance and Expanding the coverage and adequacy of cash infrastructure, causing higher food prices, inflation, and transfers is essential to strengthening the poverty- increased government spending on disaster response. and inequality-reducing impact of Kenya’s fiscal policy. Externally, increasing global geopolitical risks, which Reducing untargeted and inefficient subsidies, which include uncertainty about global economic policy, could disproportionately benefit wealthier households, can have spillover effects on Kenya’s economy. The rise in cost help create fiscal space for this expansion. At the same of fuel and food imports, driven by supply constraints or time, strategic value added tax (VAT) reforms, when geopolitical instability, could put upward pressure on paired with complementary social protection measures, inflation, erode household purchasing power as well as can raise additional revenue without harming the increase the cost of doing business. welfare of the poor. Continued investment in health and education remains essential to support long-term equity In the context of narrowing fiscal space, growing and economic mobility. When combined with inclusive demand for investment in essential services, and growth, these reforms can transform fiscal policy into the limited inclusivity of economic growth, there a powerful instrument for reducing poverty, lowering is an urgent need for a more efficient and equitable inequality, and building a fairer and more resilient fiscal policy. Fiscal incidence analysis is instrumental in Kenyan economy. iv May 2025 | Edition No. 31 The State of Kenya’s Economy Photo: ©Kipyegon Mutai/World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1 The global and regional economy Sub-Saharan Africa’s economy is showing resilience The global economic context improved modestly in amid easing financial conditions and global 2024, supported by easing inflation and a rebound uncertainties, with growth primarily driven by private in global trade. Global growth remained resilient at 2.7 consumption and investment. Growth picked up from percent in 2024 and is projected to hold steady through 2.9 percent in 2023 to an estimated 3.3 percent in 2024 2026, as is growth in the advanced economies, despite and it is projected to strengthen from 3.5 percent in geopolitical tensions and policy uncertainty. Inflation fell 2025 to 4.3 percent in 2026, supported by improving in 2024, driven by monetary-policy adjustments that have financial conditions for firms and households as inflation loosened financial conditions, as advanced economies recedes.4 Consequently, central banks have begun easing continue to cut interest rates. The rebound in global trade their stances on monetary policy. Still, inflation in food further boosted economic activity, with growth in global prices remains elevated, particularly due to drought goods’ trade accelerating in the second half (H2) of 2024, conditions in Southern Africa, ongoing conflicts in Sudan following a subdued H1. Meanwhile, growth in emerging and South Sudan, and sudden currency depreciations in markets and developing economies (EMDEs) is forecast to larger economies such as Angola, Ethiopia, and Nigeria.5 remain steady in 2024-25, before falling slightly in 2026.1 Despite efforts in fiscal consolidation efforts to narrow deficits, high debt burdens and elevated borrowing costs Commodity prices have been declining but rising continue to constrain government spending, limiting their uncertainty about global economic policy may affect ability to fund development projects. Debt vulnerabilities commodity prices in the near term. Prices fell modestly in remain a pressing concern in the region, with countries 2024 by 3.0 percent. Brent crude oil prices, which averaged such as Burundi, Cameroon, Ethiopia, Kenya, Malawi, and US$80/barrel of crude oil (bbl) in 2024, are expected Zambia, among others, facing high risks of debt distress.6 to fall to US$72/bbl in 2025 and US$71/bbl in 2026, as The region’s broader economic outlook remains highly robust supply and weak consumption growth in major uncertain, shaped by fiscal vulnerabilities, global trade economies outweigh the impact of geopolitical tensions. disruptions, potential slowdowns in major economies, and Metal and mineral prices are predicted to decline in 2025- climate-related shocks. Addressing these risks will require 26, driven mainly by China’s weaker domestic demand. coordinated policy efforts, economic diversification, Meanwhile, food commodity prices are expected to fall by and stronger measures for climate resilience to ensure an additional 5 percent in 2025 following an 8.0 percent sustained and inclusive growth. decline in 2024, as harvesting conditions in key exporting countries improve, before stabilizing in 2026.2 1.2 Recent developments in Kenya Despite several improving macroeconomic indicators, Rising global economic policy uncertainty, particularly Kenya’s economy has slowed. Inflation has fallen, the in trade, has recently heightened, thus clouding exchange rate has remained stable, and international investment and growth prospects in developing reserves have increased markedly. The tighter monetary economies. While global trade rebounded in 2024 at and fiscal commitments allowed the country to 2.7 percent, it is expected to slow in 2025. An increase in successfully issue and buy back 75 percent of the tariffs could dampen trade flows, particularly for EMDEs, February 2024 Eurobond in the international markets. even amplifying the impact on global supply chains Subsequently, economic conditions improved as and investor confidence. Furthermore, climate-related the exchange rate stabilized, and reserves increased. disruptions, exacerbated by record-high temperatures, Coupled with global tailwinds, inflation came down. could increasingly strain agriculture, infrastructure, and However, Kenya struggled to deliver on its fiscal economic stability.3 policy commitments. The Finance Bill 2024 resulted in widespread protests and was ultimately withdrawn, 1 Global Economic Prospects (2025). 2 Ibid. leading to fiscal slippage and uncertainty with regard to 3 Ibid. the fiscal consolidation strategy. Moreover, high domestic 4 Africa’s Purse, Volume 31, April 2025. government borrowing, and high pending bills of about 5 Ibid. 6 World Bank Debt Sustainability Analysis (DSA). 3 percent of GDP, continue to crowd out the private sector. 2 May 2025 | Edition No. 31 The State of Kenya’s Economy 1.3 The real economy business sentiments, uncertainty following the mid-2024 Kenya's GDP growth slowed in 2024. Floods, high protests, as well as the prevailing high real interest rates. interest rates, subdued business sentiment following the These contributed to the slowdown of all industry sub- mid-2024 protests, along with reduced development sectors in 2024, except manufacturing. Moreover, the spending due to fiscal consolidation efforts, contributed slowdown in public-sector infrastructure projects and to a decrease in GDP growth to an estimated 4.7 percent private-sector credit constrained growth in construction. in 2024 from 5.7 percent in 2023. This rate of growth was The subdued growth of industry was compensated for in line with Kenya’s historical average of 4.6 percent and by resilience in agriculture and services. Although heavy potential growth of 4.7 percent. rains and floods in some parts of the country in early 2024 led to loss of livestock and damage to croplands, Tight monetary policy, elevated interest rates, and favorable weather conditions in the remainder of the year policy uncertainties moderated the growth of private and availability of inputs kept agriculture growth above consumption, the main driver of GDP growth. Private the historical average. Growth in the services sector was consumption, which accounts for nearly three quarters driven by the resilience of the hospitality sub-sector, of GDP, grew by 6.9 percent in 2024, lower than 7.5 which benefited from several high-profile international percent in 2023, in line with a decline in credit to private conferences hosted in 2024, as well as by information and sector. However, robust growth in agriculture and robust communication technology (ICT), and financial services. growth of inward remittances (19 percent in 2024 from 3.9 percent in 2023) compensated for the weak outcome Growth of formal wage employment declined in 2024 and supported households’ consumption (Figure 8). in the context of growth slowdown, while the informal Meanwhile, the contribution from investment remained sector remained the largest source of employment. Total sluggish in 2024, as reflected in low credit growth due wage employment in the country grew by 3.9 percent, to high real interest rates, subdued business sentiment driven largely by employment in the informal sector occasioned by policy uncertainty amid social protests, and which grew by 4.2 percent. Formal wage employment declining industrial production. grew by 2.4 percent in 2024 due to a slowdown in labor- intensive activities in industry as well as government The economic deceleration was primarily driven by a policy to contain the wage bill, consistent with ongoing decline in industrial production, while agriculture and fiscal consolidation (Figure 11). However, real average services sectors demonstrated resilience (Figure 9). earnings recovered amid low inflation, growing by 2.3 Activities in industry were constrained by a number of percent in 2024 compared to a contraction by 0.2 percent factors, such as the appreciation of the shilling, plummeting in 2023. Box 1: Recent trends in employment and wages Employment growth has slowed in recent years, with an even slower rate of growth since 2020. While growth in employment has slowed (Figure 1), most new jobs continue to be in the informal sector, which accounts for most employment. In 2024, total employment reached over 20 million people; however, only 15 percent of those employed worked in the formal sector. Worryingly, the share of formal jobs has also steadily declined from nearly 20 percent in 2010 to 15 percent in 2024 (Figure 2). Informal employment in Kenya is below the lower-middle income level and comparable to Sub-Saharan Africa with around 6 out of every 7 employed people working in the informal sector (Figure 3). Figure 1: Number of people employed by in the formal sector, Figure 2: Share of wage employment, 2010-2024 and growth in total employment, 2010-2024 Wage employment Self employment Share of wage employment Informal employment Employment growth 20 25,000 12 Growth in total employment Number of people ('000s) 10 18 20,000 8 6 Percent 15,000 16 4 10,000 2 0 14 5,000 -2 -4 12 0 -6 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 10 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source: Author’s calculations based on the KNBS Economic Survey Source: Author’s calculations based on the KNBS Economic Survey May 2025 | Edition No. 31 3 The State of Kenya’s Economy Box 1: Recent trends in employment and wages (cont) The modest-wage employment growth that occurred Figure 3: Cross-country share of informal employment, 2024 between 2019 and 2024 was concentrated in public- 90 Informal share of total employment 88 sector services, particularly in education. Between 2019 86 86 and 2024, overall wage employment grew by 10 percent 85 (Figure 4), but growth was uneven across sectors with public- 82 sector employment expanding by 18 percent compared 80 to just 6 percent in the private sector. Most of the growth in wage employment in both sectors came from services 75 (Figure 5). Within services, public-sector industries including education and public administration contributed the most 70 Kenya Sub-Saharan Low Lower-middle (Figure 6). In contrast, some private-sector industries, such Africa income income as transport and trade, saw little growth or even a decline. Source: Labor Force Statistics (LFS) database, ILOSTAT. Figure 4: Growth in wage employment between the private and Figure 5: Growth in wage employment within the private and public sector, 2019-2024 public sector, 2019-2024 Wage employment Wage employment growth Wage employment growth (2019-2024) 20 Percentage growth from 2019 to 2024 18 1,400 25 Wage employment ('000s) (2019) 1,198 15 1,200 20 1,000 15 10 800 762 10 10 600 568 6 5 5 400 297 200 62 0 42 0 0 -5 Overall Private sector Public sector Agriculture Industry Services Agriculture Industry Services Employment Private sector Public sector Source: Author’s calculations based on the KNBS Economic Survey. Source: Author’s calculations based on the KNBS Economic Survey. In addition to low formal-employment growth, real wages have remained stagnant for over a decade. Average monthly real wages fell sharply between 2005 and 2011, stabilizing somewhat afterward but remaining on a downward trend (Figure 7). While there was a rebound between 2012 and 2019, wages have declined again since 2020. By 2024, both public- and private-sector average real monthly wages had converged to similar levels (around KSh 70,000) well below their 2005 values and near their lowest level in the past two decades. Figure 6: Growth in wage employment by industry in the Figure 7: Average monthly real wages, 2005-2024 services sector, 2019-2024 40 Private sector Public sector Overall 120,000 Average monthly real wages Public-Health and Social Work Wage employment growth 30 110,000 Private-Accomodation Public-Education Public-Transport 100,000 (2019-2024) 20 Private-Finance, Public-Public Administration 90,000 Real Estate Private-ICT 80,000 10 Private-Education 70,000 Private-Trade 0 60,000 0 50 100 150 200 250 300 350 400 50,000 Private-Transport 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -10 Wage employment ('000s)(2019) Source: Author’s calculations based on the KNBS Economic Survey. Source: Author’s calculations based on the KNBS Economic Survey. Economic activity in industry recovered in the first increased by 12 percent while consumption went up quarter (Q1) of 2025, while services and agriculture by 19 percent7). The Purchasing Managers’ Index (PMI) remained robust. The recovery in industry was also stayed above the 50 mark in early 2025, following an supported by an uptick in the construction sub-sector, increase in the volume of new orders to meet domestic as production and consumption of cement improved demand, compared to volatility experienced during the compared to a similar period last year (production same period in 2024 (Figure 10). 7 https://www.knbs.or.ke/wp-content/uploads/2025/04/Kenya-Leading-Economic-Indicators-February-2025.pdf 4 May 2025 | Edition No. 31 The State of Kenya’s Economy Figure 8: A tight monetary policy and high interest rates Figure 9: Industrial production declined, while agriculture and moderated domestic demand in 2024 services showed resilience in 2024 Private consumption Government consumption Agriculture Industry Services Net taxes on production GDP Gross xed investment Inventory and statistical discrepancy Net exports GDP 10 12 8 10 6 8 Percentage points Percentage points 4 6 4 2 2 0 0 -2 -2 -4 -4 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Source: World Bank and KNBS Source: World Bank and KNBS Figure 10: Economic activity in industry shows signs of recovery Figure 11: Formal wage employment has slowed in early 2025 Purchasing Manager's Index Informal sector Private wage employees Public wage employees Self-employed and unpaid family workers 55 20.0 50 16.0 45 Employees in million 12.0 40 8.0 35 4.0 30 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul--24 Oct--24 Jan--25 Apr--25 0.0 2019 2020 2021 2022 2023 Source: S&P Global Source: KNBS 1.4 External sector8 declining from 1.2 percent to 1.1 percent of GDP, and The external sector showed improvement, driven by manufactured goods’ exports falling from 0.6 percent recovering exports and rising financial inflows. The of GDP in 2023 to 0.5 percent in 2024. Overall, exports current account deficit narrowed from 4.0 percent of GDP of goods and services weakened as services’ exports in 2023 to 3.7 percent in 2024, supported by a gradual dropped from 5.0 percent of GDP in 2023 to 4.5 percent rebound in exports of both goods and services, and in 2024, primarily due to declining travel receipts (from significant growth of remittances (Figure 12). FDI and 0.9 percent to 0.8 percent of GDP), despite continued other financial inflows grew alongside foreign-exchange growth in tourist arrivals. Imports of goods rebounded, reserves, which remained above the four-month import rising by 9.8 percent in 2024 from a deceleration of 11 cover threshold. Tourism continued to grow, albeit at a percent in 2023, though they declined as a share of declining pace. GDP from 16.0 percent in 2023 to 15.4 percent. Imports of machinery and transport equipment surged by 33.7 Both exports and imports recovered in the year to percent (increasing to 3.5 percent of GDP from 3.0 December 2024 compared to 2023. Receipts from goods percent), likely reflecting increased infrastructure and exports grew by 15.4 percent in the year to December industrial investments. However, the oil import bill fell 2024, mainly driven by agricultural exports and re-exports, by 2.6 percent in 2024 (declining from 4.4 percent to 3.8 marginally increasing the ratio of exports to GDP from 6.7 percent of GDP) due to reduced international oil prices percent in 2023 to 6.8 percent. However, tradable sectors and a stronger and stable shilling. experienced a marginal slowdown, with tea exports 8 The recently released 2025 Economic Survey presents more updated external sector figures, including a sharper narrowing of the current account deficit to 1.3 percent of GDP in 2024, driven by slower growth in imports relative to exports. The survey also reports generally slower growth in exports, imports, and financial inflows. These variations primarily stem from KNBS’s use of a new methodology to capture the data. May 2025 | Edition No. 31 5 The State of Kenya’s Economy Financial inflows recovered as global economic remittances, and export revenues (Figure 14). The shilling conditions eased, and domestic macroeconomic appreciated by 17.4 percent year-on-year (y/y) to April stability improved (Figure 13). Financial inflows increased 2025, stabilizing at an average of around KSh 129.6 against from 1.9 percent of GDP in 2023 to 5.0 percent of GDP the US dollar, compared to KSh 152.2 in February 2024. in 2024 driven by increments in investments. Private The appreciation in 2024 and continued stability were capital inflows also improved with portfolio investments driven by improved forex reserves, supported by increased shifting from an outflow of 0.6 percent of GDP in 2023 foreign financing, remittances, and export revenues. to inflows of 0.5 percent of GDP in 2024. However, FDI Remittances grew by 19.0 percent y/y to December 2024. inflows remained low, consistent with their historical trend and have averaged 0.2 percent of GDP between The appreciation of the shilling, financial inflows, 2022 and 2024 from an average of 0.8 percent between and foreign financing supported accumulation of 2015 and 2019. The decline has largely been influenced forex reserves, which remain above the CBK statutory by changes in global economic conditions and a decline minimum. Foreign reserves reached US$ 9.7 billion in domestic attractiveness.  (4.1 months of import cover) in April 2025, up from US$ 7.0 billion (3.7 months of import cover) in April 2024, The Kenya shilling remained stable, supported by comfortably above the CBK’s statutory four-month a strong external sector, foreign financing, diaspora requirement (Figure 15). Figure 12: The current account deficit continued to narrow Figure 13: Financial inflows rebounded amid easing global conditions and improved domestic stability Trade balance Remittances Capital account balance Direct investment, net Portfolio investment, net Primary income balance Non-remittance secondary income balance Other investment, net Net errors and omissions Reserves and related items Current account balance Current account balance 10 10 8 5 6 Percent of GDP Percent of GDP 4 0 2 -5 0 -2 -10 -4 -6 -15 -8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2022 2023 2024 2022 2023 2024 Source: CBK Source: CBK Figure 14: The Kenya Shilling remained stable Figure 15: Reserve buffers are adequate and remain above the CBK’s statutory minimum Ksh/US$ O cial reserves Import cover Minimum import cover requirement (Months) 170 10,000 6.0 160 9,000 5.5 O cial reserves in million US $ 5.0 150 8,000 Import cover in months 4.5 140 7,000 4.0 Ksh/US$ 130 6,000 3.5 5,000 3.0 120 4,000 2.5 110 2.0 3,000 100 1.5 2,000 90 1.0 1,000 0.5 03/01/2023 14/02/2023 28/03/2023 15/05/2023 27/06/2023 09/08/2023 20/09/2023 03/11/2023 19/12/2023 02/02/2024 15/03/2024 02/05/2024 14/06/2024 29/07/2024 09/09/2024 24/10/2024 10/12/2024 24/01/2025 06/03/2025 22/04/2025 - 0.0 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 May-24 Jul-24 Sep-24 Nov-24 Jan-25 Mar-25 Apr-25 Source: CBK Source: CBK 6 May 2025 | Edition No. 31 The State of Kenya’s Economy 1.5 Monetary and financial-sector Credit to the private sector continued to fall, driven performance by higher interest rates, weakening demand, and the A tighter monetary policy and moderation of global exchange rate valuation effect. Overall, credit growth in inflation have contributed to a decrease in inflation in the private sector declined by 1.4 percent in December Kenya. Inflationary pressures are easing, with headline 2024, compared to a growth of 13.9 percent in December inflation slowing from 5 percent to 4.1 percent y/y in 2023 (Figure 17). Growth in local currency loans to the April 2025 and lingering below the CBK’s target mid- private sector fell from 15 percent in December 2023 to point since June 2024 (Figure 16). This reduction was 1.2 percent in December 2024, partly reflecting reduced mainly driven by the decline of cost of housing, water, credit demand and increased net loan repayments. electricity, gas, and other fuels, as well as transport, for Credit in foreign currency contracted by 11.4 percent which inflation specifically fell from 6.5 percent to 1.6 in December 2024, compared to a growth of 10.9 percent y/y in April 2025. Food inflation remains stubborn, percent in December 2023, mainly due to the impact of increasing to 7.1 percent in April 2025 from 5.6 percent exchange rate appreciation on foreign currency loans.10 a year earlier, mainly because of the rising prices of Irish At the sectoral level, the decline was driven by reduced potatoes, maize grain and fortified maize flour. Core lending to the mining, finance, and manufacturing inflation, which excludes food and energy prices, eased sectors, which contracted by 22.9 percent, 21.2 percent, to 3.2 percent y/y in April 2025 from 3.9 percent recorded and 9.4 percent, respectively. Other notable sectors that a year earlier, as processed-food items and alcoholic recorded a decline in credit growth include construction beverages saw declining prices. The decline in inflation (6.1 percent), as well as business services (4.5 percent). was also supported by lower inflation in imports, as global However, credit growth remained positive for private headline inflation eased from 6.7 percent in 2023 to 5.7 households (9.2 percent) and agriculture (5.1 percent), percent in 2024.9 as well as in consumer durables (3.3 percent), trade (2.3 percent), transport and communication (1.6 percent), and With inflation consistently below the mid-point target real estate (1.3 percent). However, private sector recorded range for most of 2024 and 2025, the CBK is loosening a modest growth of 0.2 percent in March 2025, reflecting its monetary policy stance. The CBK lowered its policy dissipation of exchange rate valuation effects on foreign rate to 10 percent in April 2025, continuing a trend of currency denominated loans following the appreciation easing its monetary policy, that began in the H2 of 2024. of the shilling, and improved demand with declining This marks a decline from the 13 percent peak in July 2024. lending interest rates. However, as the CBK sustains monetary-policy easing, inflation—having reached its lowest point in October The banking sector remains stable despite rising NPLs. 2024 (2.7 percent)—has been rising gradually and is likely The capital adequacy ratio increased to 21.1 percent to continue this upward trend as non-core inflation rises. in February 2025 from 19.4 percent in December 2024, Figure 16: Inflation moderated below the CBK’s target mid-point Core In ation Food In ation Housing, water, electricity, gas & other fuels + transport in ation 10 9 8 Upper bound ercentage point contributions to 7 Pannual percentage change 6 5 Midpoint 4 3 Lower bound 2 1 0 -1 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Dec-24 Jan-25 Feb-25 Mar-25 Apr-25 Source: World Bank and KNBS 9 CBK MPC Meeting Background Data (April 2025). 10 CBK MPC Meeting Background Data (April 2025). May 2025 | Edition No. 31 7 The State of Kenya’s Economy Figure 17: Credit to private sector continued to contract Figure 18: NPLs rose but the banking sector remained stable Nominal lending rate Nominal policy rate NPLs/Total loans NPLs/Total loans (large banks) Nominal growth in private sector credit NPLs/Total loans (medium banks) NPLs/Total loans (small banks) Growth in private sector credit adjusted for exchange rate valuation 20 20 19 18 15 17 16 Percent 10 Percent 15 5 14 13 0 12 11 -5 10 Jul-24 Oct-24 Dec-22 Dec-23 Apr-24 Dec-24 Jun-22 Jun-23 Jun-24 Jan-24 Sep-22 Sep-23 Feb-24 Mar-22 Mar-23 Mar-24 Sep-24 Aug-24 May-24 Nov-24 Jan-22 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Source: CBK Source: CBK remaining well above the minimum requirement of 14.5 estimate of 4.3 percent in August 2024, but less than the percent. The liquidity ratio rose from 55.8 percent in 5.2 percent of GDP deficit in the previous year. Meanwhile, December 2024 to 58.3 percent in February 2025, also low revenue performance and associated delays in above the minimum requirement of 20 percent of deposit the release of funds continue to lead to the build-up of liabilities. However, the total NPLs to total loan ratio has pending bills/arrears of KSh 421.6 billion (2.4 percent of been on an upward trend during the last year reaching GDP) in March 2025. 14.3 percent in December 2024 from 13.0 percent recorded a year earlier, with smaller banks being more Tax revenue targets were not met during Q3 FY2024/25. affected due to their limited risk diversification and higher The revenue gap vis-á-vis the target was driven by tax- exposure to risk in their loan portfolios (Figure 18).11 The revenue underperformance while appropriation in aid elevated NPL levels, if not addressed, could dampen banks’ was above the target (Figure 19). As a share of GDP, tax capacities to lend, weaken investor confidence, and pose revenue missed its target by 0.9 percentage points, with longer-term risks to financial stability by straining capital the bulk of the underperformance coming from the and provisioning buffers. Nonetheless, banks continued largest contributor to Kenya’s tax revenue: income tax and to make adequate provisions. Additionally, the sector VAT. VAT collection fell by 0.2 percentage points below remained profitable, with pre-tax profits growing by 15.9 target, and income tax by 0.4 percentage points, partly percent to KSh 262.3 billion in December 2024, up from attributable to a decline in employment and company KSh 226.3 billion in December 2023.12 profits, especially in the industry sector. These factors affected household consumption, pay-as-you earn, and 1.6 Fiscal developments corporate tax. Import duty experienced the lowest Low revenue growth undermined fiscal consolidation deviation against the target, following a rebound in efforts during the third quarter (Q3) of FY2024/25. imports growth. Although tax revenue underperformed, Revenue performance was weak owing to the prevailing some non-tax revenue, including revenue collected slowdown in economic activity, especially industrial by state organs (and retained by them to cover their production during July-December 2024. As a share of GDP, expenses), was above its target. This was as a result of total revenue and grants declined by 0.5 percentage the government continuing to implement the use of a points to 11.5 percent in Q3 FY2024/25 from 12.0 single paybill, which has enhanced efficient collection percent in Q3 FY2023/24. A decline in expenditure by of public service fees. Supported by recently enacted tax 0.9 percentage points mitigated for the weakness in policy and administration measures, including Tax Laws revenue, resulting in a fiscal deficit of 3.9 percent of GDP (Amendment) Act, 2024; Tax Procedures (Amendment) and primary surplus of 0.7 percent of GDP in Q3 FY2023/24. Act, 2024; and Statutory Instruments (Amendment) Act, By the end of FY2024/25, the government estimates a 2024 enacted in December 2024 , the government plans primary surplus of 0.6 percent of GDP, and a fiscal deficit to collect revenue (excluding grants) amounting to 17.6 of 5.1 percent of GDP, a deficit greater than the revised percent of GDP by the end of FY2024/25. 11 While the CBK does not mandate specific NPL thresholds, the ratio is above the European Banking Authority’s 5 percent benchmark, which is used as a guideline. 12 CBK MPC Meeting Background Data (April 2025). 13 https://taxnews.ey.com/news/2025-0233-kenya-enacts-changes-under-the-tax-laws-amendment-act-2024-and-other-legislation#:~:text=The%20Tax%20Laws%20 (Amendment)%20Bill%202024%20aimed%20to%20amend%20several,effective%20on%2027%20December%202024. 8 May 2025 | Edition No. 31 The State of Kenya’s Economy Figure 19: Revenue underperformance continues to undermine Figure 20: Debt-service costs remain elevated fiscal consolidation efforts Deviation against target in H1 FY 2024/25 Operations, maintainance and others Interest payments Development expenditure Wages and salaries County transfers Other 17 25 Grants 1 3.5 2.8 20 2.9 2.4 2.6 Import duty -7 4.3 4.1 3.7 3.8 3.6 Percent of GDP 15 Excise duty -21 4.9 4.2 3.5 3.4 3.4 10 4.5 5.2 Income tax -35 4.4 4.8 5.7 VAT -35 5 6.5 7.2 6.7 6.7 6.3 -40 -30 -20 -10 0 10 20 0 KSh billion 2020/21 2021/22 2022/23 2023/24 2024/25e Source: The National Treasury Source: The National Treasury Figure 21: Public debt reduced although vulnerabilities remain Figure 22: Domestic yields have declined following easing of monetary policy and lower risk perception External debt Domestic debt Gross public debt 30-Jun 23 28-Jun 24 14-Jun 25 80 19 18 70 17 16 60 15 14 50 Percent of GDP Yield (%) 13 40 12 11 30 10 9 20 8 7 10 6 0 3M 6M 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2020/21 2021/22 2022/23 2023/24 2024/25e Year to maturity Source: World Bank calculations, National Treasury Source: CBK Expenditure pressures from debt servicing cost have The gains from expenditure cuts in the first persisted while accumulated pending bills remain supplementary budget of August 2024 have been a fiscal risk, needing to be repaid once verified reversed. The government revised the FY2024/25 budget (Figure 20). Debt-servicing cost remained higher than in August 2024 and March 2025 to address revenue the previous year’s level and above targets set in Q3 target shortfalls and expenditure pressures. Initially, both FY2024/25. Additionally, although accumulated pending revenue and expenditure were reduced, following the bills have declined from, they remain a fiscal risk. Pending withdrawal of the Finance Bill 2024. However, in March bills decreased from KSh 539.9 (3.1 percent of GDP) in 2025, the second supplementary budget increased overall December 2024 to KSh 421.6 billion (2.4 percent of GDP) expenditure (by 3.3 percent), prioritizing recurrent costs, in March 2025. The ongoing pending-bills verification including domestic-interest payments, wages, as well exercise14 is expected to help the government determine as operations and maintenance. With revenue targets the actual amount of pending bills and take measures to remaining largely unchanged (increased by 0.3 percent), prevent future occurrences. Repayment efforts should the budget deficit grew to 5.1 percent of GDP in the be prioritized and anchored in the existing medium- second supplementary budget, an increase from 4.3 term debt strategy to prevent an increase of debt percent of GDP. vulnerabilities and to release the much-needed capital to the private sector. However, government spending on Domestic yields have declined due to easing monetary wages and salaries, development, as well as operations policy and lower risk premium, but increased domestic and maintenance were lower than previous year’s level borrowing is crowding out private-sector lending. and target in Q3 FY2024/25. Lower than budgeted external financing disbursement in 14 This is expected to be completed in June 2025. May 2025 | Edition No. 31 9 The State of Kenya’s Economy Q3 FY2024/25 pushed domestic borrowing above target public debt is estimated to decline from 65.7 percent of and the previous year’s level. Net domestic borrowing of GDP in FY2023/24 to 65.5 percent in FY2024/25 (Figure 3.5 percent of GDP, above the targeted 2.5 percent of GDP, 21). However, the risk of debt distress remains high, while was sourced mainly through government securities (3.8 the present value of total public debt-to-GDP ratio remains percent of GDP), and net repayment to CBK (0.3 percent above the 55 percent benchmark through 202915,16. Debt- of GDP). Despite increased domestic borrowing, domestic servicing costs remain elevated, with interest payments yields have declined in line with the cut in the Central estimated at 5.7 percent of GDP in FY2024/25 (of which Bank rate (CBR), leading to improvement in Kenya’s global 4.4 percent is contributed by domestic interest payments). sovereign ratings (Figure 22). Additionally, the government The corresponding figure was 5.2 percent of GDP in the has engaged in liability-management operations to previous year. This constitutes 42.5 percent and 32.4 ensure financial stability, in line with the medium-term percent of tax revenue and total revenue, including grants, debt strategy. In March 2025, the government issued a respectively and underscores the need for expenditure US$1.5 billion Eurobond at an interest rate of 9.5 percent efficiency and greater revenue mobilization in order to to ease repayment burdens due in 2027, amortized in meet these obligations and leave room for pro-growth three instalments in 2034, 2035, and 2036. spending. The fiscal space remains constrained as total committed expenditures17 took up ~87.3 and ~73.4 percent Public debt has reduced as a percentage of GDP, but of tax and total revenues respectively in FY2023/24. These debt vulnerabilities remain. Following the appreciation expenditures are projected to increase to ~88.7 percent of the shilling in 2024 and increased primary surplus, and ~73.5 percent respectively in FY2024/25. 2. Outlook and Risks 2.1 Outlook of households and firms. Moreover, remittance inflows Kenya’s real GDP is expected to pick up gradually in to Kenya are projected to remain resilient and provide the medium term. Real GDP growth is projected at 4.5 further support. Private investment is projected to gain percent in 2025 and 5.0 percent in 2026–27. This is a momentum supported by improved business confidence, downward revision by 0.4 percentage points in 2025 adherence to projected fiscal consolidation by the from the December 2024 forecast, amid real interest rates government, and a stable exchange rate underpinned which are still elevated relative to the historical average. by monetary policy and successful liability management The projected medium-term growth is in line with Kenya’s operations. Additionally, implementation of purchasing potential growth (4.7 percent), which is above the Sub- power parity (PPP) projects, including the planned Saharan African average (4.2 percent)18. However, it is construction of the Mombasa-Nairobi Expressway will lower than the East African Community (EAC) peers’ increase foreign investments. However, growth of public growth average (5.3 percent). Low inflationary pressures, consumption and public investment is projected to remain easing monetary conditions, and a pickup in credit growth subdued, in line with the planned fiscal adjustment in the are expected to support household and business incomes, medium term. while projected fiscal consolidation is expected to free resources for private investment growth. On the supply side, growth will be driven by resilient agriculture, steady services, and gradual improvement Private consumption and investment are projected in industry. The agriculture sector that employs over 40 to maintain a steady pace with the macroeconomic percent of the population and contributes around 21.8 environment expected to be conducive to sustained percent of output,19 remains a key driver of growth, jobs, growth. Lower inflation, weather conditions favorable and poverty reduction. Growth in agriculture is helped by for adequate agricultural harvest, and continued easing adequate weather and availability of inputs, following the of monetary conditions will support disposable incomes easing of global inflation. Linkages with other sub-sectors 14 This is expected to be completed in June 2025. 15 World Bank. Kenya Economic Update #30 and IMF report. 16 Kenya's public debt-to-GDP ratio has been set at 55% in present value (PV) terms for a country with medium debt-carrying capacity to be achieved by 2029. 17 This includes expenditures on wages and salaries, interest payments, pensions, O&M, transfers to counties, civil service reforms, Parliamentary services, and Judicial services. 18 Using GEP January 2025 estimates, to be updated using Africa’s Pulse; EAC average from MFMOD excludes South Sudan. 19 KNBS Census of Agriculture, 2024 Pilot Survey. 10 May 2025 | Edition No. 31 The State of Kenya’s Economy will boost the food-processing industries, merchandise decline in incomes following the decline in aid flows. exports, as well as households’ incomes. The industrial A projected increase in domestic demand will drive sector is projected to pick up in the medium term due to import growth largely through imports of raw materials the reduced cost of production and stable exchange rate. for the likely recovery in industrial growth and imports for Performance in the services’ sector is projected to hold household consumption. The estimated current account steady in the medium term. Kenya’s fast-growing services, deficit is expected to be financed by a steady capital including the financial sector and ICT, are projected to inflow, largely private inflows, as FDI and other private maintain momentum while improvement in credit to capital inflows recover, following easing global financial private-sector growth will support robust growth in conditions. Government external borrowing is projected wholesale and retail trade. Projected lower fuel prices20, to be lower, in line with the declining fiscal deficit and the albeit with slow transmission mechanism, will support government’s medium-term debt strategy. the growth of the transport sector, while ongoing efforts by the government to promote eco-friendly Inflation is expected to stay within the CBK target tourism practices, expand community-based tourism, and range as core inflation remains low, supporting invest in port facilities to promote cruise tourism21, are an accommodative monetary policy stance. Lower expected to drive the growth of the hospitality sector in inflationary pressures from declining international the medium term. commodity prices and domestic food prices will continue to support lower real interest rates and boost private-sector Kenya’s external balance is projected to remain credit. Additionally, projected resilience of remittance stable in the medium term. The current account deficit inflows, government revenue mobilization efforts, low is expected to remain stable at 4.0 percent of GDP, fiscal deficits, and coordinated liability management are supported by increasing exports of goods and services in anticipated to keep the shilling stable. the medium term as trade agreements are implemented, and global financial conditions ease further. Additionally, The government has projected sustained fiscal a projected robust growth in Kenya’s key trading partners consolidation in the medium term. The fiscal deficit (Africa) and low international commodity prices will drive is projected to narrow from 4.3 percent of GDP in demand for Kenya’s exports with resilience expected in FY2025/26 to 3.5 percent in FY2026/27, sustaining agriculture. An anticipated stabilization in global growth a primary surplus of 1.7 percent of GDP on average in the medium term is expected to support resilience in during this period driven by contained spending and diaspora remittances as well as a continued growth in increased revenue collection. The government projects tourism and transport receipts. The estimated recovery a decline in recurrent expenditure, while development in service exports is expected to compensate for a expenditure is projected to gradually pick up to support the government’s Bottom-up Economic Transformation An anticipated stabilization in Agenda (BETA), including affordable housing. Planned global growth in the medium term is expected to support policies to support expenditure rationalization include resilience in diaspora continued containment of the wage bill, with the budgeted wages and salaries as a share of GDP projected to decline by 0.3 percentage points cumulatively in FY2025/26 and FY2026/27. The government also plans to mobilize funds for planned major infrastructural projects through PPPs such as the Nairobi-Mombasa Expressway project in FY2025/26. However, despite a projected decrease in financing needs and interest rates, debt-servicing costs are projected to remain elevated, with interest payments expected to peak in FY2025/26 Photo: ©Arne Howel/World Bank at 5.9 percent of GDP and decline to 5.4 percent of 20 World Bank commodity prices. A note also on government fuel import deals. 21 Government of Kenya. 2025. Cabinet News March 11, 2025. May 2025 | Edition No. 31 11 The State of Kenya’s Economy GDP in FY2026/27. The government plans to continue average rains in the near term, favorable for agriculture22. enhancing tax administration and collection of non-tax Assumptions as per the last economic update (December revenues from ministries, departments, and agencies. 2024) continue to hold. The planned government Subsequently, the stock of public debt is likely to reduce interventions toward climate-change adaptation to 61.1 percent of GDP in FY2026/27. However, without and mitigation measures in the forecast horizon sustained realization of set fiscal commitments, the include rehabilitation of wetlands (with the ongoing target of achieving a present value of debt to GDP of 55 preparation of the land-reclamation bill/policy targeted percent by 2029 could be missed. to be completed in FY2024/25) and reforestation (Kenya launched a tree-planting initiative in 2022 with an aim to Real per capita incomes are expected to increase, plant 15 billion trees nationwide by 2032). These actions and the poverty rate looks to continue its downward are expected to generate economic co-benefits including, trend. However, this decline is slow and vulnerable to a among others, sustainable land use for increased reversal in the event of shocks. The US$2.15 poverty rate agricultural yields, improved bio-diversity conservation is expected to fall to 34 percent in 2024. and time savings from enhanced urban mobility and access to resources such as treated piped water. These The baseline assumes normal weather conditions, savings can be redirected to other economic activities, but Kenya remains vulnerable to climate- change further boosting economic growth. These actions come shocks. The Kenya meteorological department forecasts at a cost, but the long-term benefits outweigh the costs. Table 1: Medium term growth projections 2022-27 (percent, unless otherwise stated) 2022 2023 2024 e 2025 f 2026 f 2027 f Real GDP growth, at constant market prices 4.9 5.7 4.7 4.5 4.9 5.0 Private consumption 2.3 7.5 6.9 4.8 4.7 4.9 Government consumption 8.1 2.0 0.4 1.5 1.9 3.4 Gross fixed capital investment -0.8 1.9 6.2 3.9 5.8 6.0 Exports, goods and services 20.8 11.7 7.5 6.2 8.4 8.6 Imports, goods and services 10.9 1.3 2.7 4.7 5.8 7.2 Real GDP growth, at constant factor prices 4.5 5.9 4.9 4.5 4.9 5.0 Agriculture -1.5 6.5 4.7 4.1 4.5 4.8 Industry 3.9 2.0 0.8 2.9 3.6 3.9 Services 6.6 6.9 6.1 5.0 5.4 5.5 Employment rate (% of working-age population, 15 years+) 63.4 63.2 63.3 63.5 63.7 63.9 Inflation (consumer price index) 7.6 7.7 4.5 5.0 5.0 5.0 Current account balance (% of GDP) -5.2 -4.0 -3.7 -4.0 -4.0 -4.0 Net FDI inflow (% of GDP) 0.2 0.2 0.3 0.4 0.7 1.2 Fiscal balance (% of GDP)/1 -5.6 -5.2 -5.1 -4.3 -3.5 -3.2 Revenues (% of GDP)/1 16.7 16.9 17.9 17.8 18.0 18.1 Debt (% of GDP)/1 72.0 65.7 65.5 63.6 61.1 58.5 Primary balance (% of GDP)/1 -0.8 0.0 0.6 1.5 1.8 1.8 International poverty rate (US$2.15 in 2017 PPP) 35.8 34.7 34.0 34.0 33.4 32.9 Lower middle-income poverty rate (US$3.65 in 2017 PPP)3,4 69.8 68.8 68.2 68.2 67.7 67.1 Upper middle-income poverty rate (US$6.85 in 2017 PPP)3,4 90.9 89.6 88.8 89.5 88.1 87.5 Greenhouse Gas (GHG) emissions growth (mtCO2e) -1.9 3.5 5.8 6.6 6.1 6.2 Source: World Bank, KNBS, CBK , National Treasury Note: 1/Fiscal year basis 2022 = FY2022/23 22 https://meteo.go.ke/forecast/seasonal-forecast 12 May 2025 | Edition No. 31 The State of Kenya’s Economy 2.2 Risks to the outlook and policy Kenya's economic outlook is recommendations subject to several downside Kenya's economic outlook is subject to several risks that could hinder growth downside risks that could hinder growth and and macroeconomic stability macroeconomic stability. These risks range from fiscal challenges to weather and external shocks. Missing revenue and fiscal consolidation targets as well as delays in implementing critical reforms continue to be major concerns for the country. Failure to meet fiscal targets may also erode investor confidence, leading to higher borrowing costs and increased external financing risks. Committed recurrent expenditures consume more than 0.5% of total revenues, leaving limited fiscal space for Photo:©AMelody Lee/World Bank development expenditures. Higher public debt levels and rising debt-service costs could crowd out essential Externally, increasing global geopolitical risks, development spending, reducing the fiscal space available including uncertainty about global economic policy, for development projects. Extreme weather events pose could have spillover effects on Kenya’s economy. The a serious threat to Kenya’s agricultural performance. rise in costs of fuel and food imports, driven by supply Disruptions in food production due to droughts and constraints or geopolitical instability, could put upward floods could lead to higher food prices, exacerbating pressure on inflation, eroding household purchasing inflation, and straining household incomes. Additionally, power and increasing the cost of doing business. climate-related damage to infrastructure, such as roads Additionally, disruptions in the supply of essential goods, and power systems, could disrupt economic activity and such as fertilizers and industrial inputs, could weaken increase government expenditure on disaster response agricultural and manufacturing output, further straining and reconstruction. economic growth. For monetary policy, the CBK faces a delicate balancing Despite these risks, there are potential upside act between containing inflation and maintaining scenarios. Accelerated economic reforms, including stability of the exchange rate. A premature acceleration further improvements in public financial management, of monetary-policy easing could trigger capital outflows, expenditure efficiency, and governance, could enhance weaken the shilling and raise the cost of imports. investor confidence and spur economic activity. A Conversely, prolonged tighter monetary conditions could favorable global economic environment, marked by stable slow credit growth, dampen domestic demand, and commodity prices, fall in oil prices, and stronger external constrain private-sector expansion. demand, could also support higher-than-expected growth, improving Kenya’s overall economic resilience. Key policy priorities to address Kenya’s underlying fiscal challenges Policy priority Recommendation Bring down the debt burden to 55 percent of GDP by 2029 from the current level (measured in present value terms), consistent with Kenya’s debt anchor, through Reduce debt vulnerabilities continued domestic-revenue mobilization, expenditure rationalization, and growth enhancing measures. Improve the cash, public procurement, wage bill, and public-investment Improve efficiency, transparency, and management systems to reduce inefficiencies and wastage at various levels of accountability of public spending government. Implement the Medium-term Revenue Strategy (MTRS) to expand the revenue Boost domestic revenues and improve the base, improve tax compliance, and reassess current tax instruments. This should be progressivity of the tax policy coupled with improvement in the progressivity and fairness of the tax policy. May 2025 | Edition No. 31 13 The State of Kenya’s Economy Despite improvements in Kenya’s macroeconomic government’s fiscal management. These developments conditions, the country continues to face structural underscore the urgent need for a more transparent, challenges, including insufficient job creation and inclusive, and equitable fiscal policy framework that not low wages, especially among the youth. Efforts at only restores public confidence but also ensures that the fiscal consolidation have been undermined by revenue costs and benefits of government taxation and spending shortfalls and rising expenditure pressures, culminating in are shared fairly across society. This edition’s special focus setbacks such as the rejection of the Finance Bill 2024 due examines how fiscal policy affects poverty and inequality, to public concerns over its impact on the cost of living. highlighting the impact across population groups. The This rejection resulted in a projected revenue shortfall of analysis underscores the need for a more equitable 1.6 percentage points of GDP for the 2024/25 fiscal year approach to ensure fair distribution of the burdens and and reflected broader issues of declining public trust in the benefits of taxation and public spending. 14 May 2025 | Edition No. 31 Special Focus SPECIAL FOCUS Photo: ©Sarah Farhat/World Bank May 2025 | Edition No. 31 15 Special Focus 3. Poverty and Distributional Impacts of Fiscal Policy in Kenya 3.1 Kenya's economic growth has not distribution of the benefits of growth. Since attaining sufficiently reduced poverty lower-middle-income status in 2014, the economy has Fiscal policy is fundamentally about people and their expanded, yet poverty has become less responsive to welfare. It determines how governments raise and spend growth (World Bank, 2023a; World Bank, 2023b). Between resources to influence employment, inflation, growth, 2005 and 2019, poverty fell from 46.7 percent to 33.6 and the distribution of income and opportunities. Taxes percent (Figure 23a), with most gains occurring between fund essential services such as infrastructure, education, 2005 and 2015, partly due to favorable agricultural healthcare, and social protection, while subsidies and conditions. The COVID-19 pandemic reversed many targeted spending can reduce poverty and inequality. gains, pushing poverty to 42.9 percent in 2020, with Ultimately, fiscal policy choices shape living standards, urban areas hit hardest. While there was a partial economic inclusion, and social mobility. recovery to 38.6 percent in 2021, poverty stagnated at 39.8 percent in 202223, reflecting the compounded In Kenya, fiscal policy has come under intense scrutiny effects of drought and global inflation. An increase in amid rising debt-service costs, constrained public both the poverty rate and population growth saw the finances, and declining household welfare due to number of poor growing from 15.8 million in 2019 to inflation and high commodity prices. The government 19.1 million in 2022. Regional disparities remain stark, has prioritized fiscal consolidation, balancing debt with rural and arid areas, especially the arid and semi-arid sustainability with growth and equity goals. Persistent lands (ASALs), bearing the highest poverty levels. These deficits, driven by spending pressures and sluggish gaps reflect structural inequalities and uneven access to revenue growth, led to the Finance Bill 2024, which services (World Bank, 2023a), underscoring the need for proposed new taxes. However, widespread protests, more inclusive growth. led notably by Generation Z in June 2024, forced its withdrawal, signaling public demand for a more equitable Some progress has been made in reducing inequality, and transparent fiscal framework. but it remains relatively high, weakening the connection between growth and poverty reduction. Kenya’s Gini These tensions reflect deeper structural issues. Kenya’s index24 fell from 47.0 in 2005/06 to 35.8 in 2020 (Figure robust economic growth—marked by a 40 percent 23b) but rose to 38.9 in 2021 due to the pandemic, increase in per capita GDP between 2005 and 2022—was easing slightly to 38.4 in 2022. Inequality is closely linked accompanied by an incommensurate 7 percentage point to geography, with access to healthcare, education, reduction in the poverty rate, underscoring the uneven electricity, and clean water still uneven. Figure 23: Poverty remains stubbornly high, and despite some gains, inequality remains relatively high a. Poverty headcount rates, 2005/06—2022 b. Gini index, 2005/06—2022 National Rural Urban National Rural Urban 60 50 49.7 50 40 43.5 42.9 46.7 38.8 40.7 Gini index 37.0 30 40 42.9 38.6 39.8 36.1 41.7 20 Percent 30 34.5 33.6 34.1 33.2 29.4 10 26.0 20 0 2005/06 2015/16 2019 2020 2021 2022 10 National 47.0 39.1 40.7 35.8 38.9 38.4 Rural 38.0 32.7 34.5 31.1 29.1 29.7 0 2005/06 2015/16 2019 2020 2021 2022 Urban 44.7 34.9 35.5 32.6 37.3 35.0 Source: Based household budget surveys conducted by the Kenya National Bureau of Statistics (KNBS). Note: The poverty headcount rates are based on the national poverty line. 23 In 2022, the national poverty line was set at KSh 4,358 for rural areas and KSh 8,006 for urban areas. 24 The Gini coefficient (or Gini index) is a measure of income or wealth inequality within a population. It ranges from 0 to 1, or when expressed as a percentage, from 0 to 100, where 0 represents perfect equality (everyone has the same income or wealth) and 1 (or 100) represents perfect inequality (one person has all the income or wealth, and everyone else has none). A lower Gini index indicates less inequality, while a higher Gini index reflects greater inequality. 16 May 2025 | Edition No. 31 Special Focus Kenya now faces a challenge to make growth more This special focus applies the Commitment to Equity inclusive. Fiscal policy must be reimagined—not just as (CEQ) framework to assess the short-term impacts of a tool for macroeconomic management, but as a lever taxes, subsidies, and social spending on inequality for equity and shared prosperity. This Economic Update and poverty, via two main channels: (i) cash-in-hand assesses the distributional impacts of taxation and public interventions (e.g., taxes, transfers) and (ii) in-kind benefits spending through a fiscal incidence analysis, addressing from public health and education services. It excludes three key policy questions: (i) How do taxes, subsidies, and other fiscal tools, such as infrastructure investment and social spending redistribute income? (ii) What is their overall corporate taxation, due to data and methodological impact on poverty and inequality? (iii) What improvements constraints. While these are critical for long-term outcomes, to Kenya’s fiscal policy could enhance its effectiveness in they fall outside the scope of this distributional analysis.25 reducing poverty and inequality? Box 2 provides an overview of the CEQ framework. Box 2: Fiscal Incidence Analysis: CEQ Framework26 To assess how fiscal policy affects poverty and inequality, this analysis uses the CEQ framework for fiscal incidence (Lustig, 2018). This framework assesses household income at various stages, as outlined in Figure 24. A household’s market income refers to the total income received from sources such as wages and salaries, rents, dividends, private transfers, remittances, and pensions27—essentially, income earned before any government intervention, also known as pre-fiscal income. Some households pay personal income taxes (PIT ) and non-pension social security contributions, which reduce their market income (resulting in net market income), while others receive direct transfers from the government, which increase it. The resulting income after these direct taxes and transfers is termed disposable income, the amount households can use for consumption or saving. As households spend, they are subject to indirect taxes, such as excise duties on specific goods (e.g., tobacco, alcohol), which reduce the purchasing power of their disposable income. Conversely, subsidies (e.g., fuel subsidies) can enhance it. The income remaining after accounting for indirect taxes and subsidies is called consumable income, which reflects what a household can afford in goods and services. When only cash-based fiscal instruments are considered, consumable income is also referred to as post-fiscal income. Beyond cash flows, households may also benefit from in-kind public services, such as education and healthcare. Including the value of these services yields the household’s final income, a more comprehensive measure of post-fiscal income that accounts for both cash and in-kind government support. The CEQ framework is a powerful tool for analyzing how taxes and public spending impact poverty and inequality by assessing who pays, who benefits, and the overall redistributive effect of fiscal policy; however, it also has limitations. The framework tracks how fiscal policy affects income distribution by starting with households' incomes before taxes and then accounting for the impact of taxes, transfers, and public services on individuals or households. It answers two key questions: (i) Who pays certain taxes or receives specific benefits? and (ii) What is the net impact of all taxes and transfers on poverty and inequality? The framework covers taxes, transfers, subsidies, and in-kind benefits, using a standardized methodology that allows international comparisons. However, it does not account for behavioral responses, long-term effects, or some aspects like corporate taxes and infrastructure spending, and may underrepresent the wealthiest households. Despite these limitations, the CEQ framework is a valuable tool for evaluating fiscal equity. The impact of fiscal policies on poverty and inequality depends on their size and how they are distributed (their progressivity). In the context of taxes and spending, progressive refers to a system where the financial burden (taxes) or benefits (spending) are more heavily targeted toward higher or lower-income groups, respectively. To assess whether a fiscal measure is progressive or regressive, the analysis compares how taxes and public spending are distributed across income groups before and after being applied (Lustig and Higgins, 2013). A tax is considered progressive when higher-income individuals or households pay a larger share of the total tax than their share of pre-fiscal income. For example, an income tax system where rates increase with income, such as 10 percent for lower earners and 30 percent for higher earners is progressive. A transfer is considered progressive when lower-income individuals or 25 For broader fiscal policy trade-offs and long-term investment strategies, readers are referred to the forthcoming Kenya Public Finance Review, which complements this analysis with a macro-fiscal and structural reform lens. 26 The CEQ approach was developed by the Commitment to Equity Institute (CEQ Institute) at Tulane University. The methodology, implementation guidelines, applications, and software of the CEQ approach can be found in Nora Lustig (Ed.), Commitment to Equity Handbook. Estimating The Impact of Fiscal Policy on Inequality and Poverty (pp. 3-55). Brookings Institution Press. 2018. 27 Pensions can either be treated as deferred income – a person makes contributions when they are working and this is in effect saving, and then they draw down on this income when they retire – or they can be treated as government taxes and transfers – contributions are treated as a tax and payments are treated as a transfer. In the case of Kenya (and all the countries included in the international comparisons), the baseline treats pensions as deferred income.. May 2025 | Edition No. 31 17 Special Focus Box 2: Fiscal Incidence Analysis: CEQ Framework (cont) households receive a larger share of the total transfer than their share of pre-fiscal income. That is, social transfers (like cash transfers, pensions, or subsidies) are progressive if they disproportionately benefit lower-income households. For instance, government programs targeting the poorest populations are considered progressive because they help reduce poverty and inequality. Ultimately, progressivity in taxes and spending aims to distribute income more evenly, with richer individuals contributing more and those in need receiving more. The Kenya fiscal incidence analysis uses the 2022/23 government fiscal data and the 2022 Kenya Continuous Household Survey (KCHS) to construct five sequential income concepts—from market income plus pensions to final income—following the CEQ methodology (Figure 24). Consistent with Kenya’s official poverty measurement, the analysis adopts a consumption-based approach, using total household consumption as a proxy for disposable income. The model simulates PIT and social insurance contributions (SIC) for formal workers, imputes five major cash transfers —Hunger Safety Net Programme (HSNP), Cash Transfer for Orphans and Vulnerable Children (CT-OVC), Older Persons Cash Transfer (OPCT ), Cash Transfer for Persons with Severe Disabilities (CT-PwSD), and Nutrition Improvement for Children through Cash and Health Education (NICHE)—to correct for underreporting, and evaluates the incidence of indirect taxes (VAT and excise) and subsidies, including a fertilizer subsidy. It also incorporates in-kind benefits from public education and health services, valued using administrative and literature-based unit costs. While the model captures a broad set of fiscal instruments and simulates their distributional effects under baseline and policy scenarios, it excludes corporate taxes, infrastructure investment, behavioral responses, long-term impacts, and possible underreporting of top incomes. The analysis therefore focuses on the immediate, static effects of fiscal policy on household welfare. Figure 24: CEQ framework for fiscal incidence analysis Taxes Market income plus pensions Transfers Subtract from income Wages and salaries, pension payments, Add to income (Who pays? How much? capital income, private transfers; before (Who receives? How much? government taxes and transfers MINUS Direct taxes Income taxes and non-pension social security contributions Net market income PLUS Direct transfers Cash transfers, food vouchers etc. Disposable income PLUS MINUS Indirect taxes Indirect subsidies VAT, sales and services Fuel, electricity, water, taxes, excises agricultural inputs, etc. Consumable income PLUS MINUS In-kind transfers Copayment and Health and education user fees Final income Source: Adapted from Lustig (2018). 3.2 How do taxes, subsidies and social and substantial investments in social sectors like spending redistribute income? health, education, and social protection. These sectors represent a significant share of public spending and Fiscal policy has been central to Kenya’s efforts to reduce poverty and inequality, but limited fiscal space now aim to protect vulnerable groups while promoting a threatens its effectiveness and sustainability decent standard of living for all. Fiscal decentralization Fiscal policy plays a central role in Kenya’s efforts to has further advanced these goals by transferring reduce poverty and inequality, complementing powers and resources to counties to address regional economic growth through a progressive tax system disparities. 18 May 2025 | Edition No. 31 Special Focus Direct taxes, such as PIT28 and corporate income tax The current analysis captures 62.3 percent of Kenya’s (CIT), are a key source of government revenue in total tax revenue. It focuses on PIT and indirect (VAT and Kenya. In 2022/23, total tax revenue amounted to 16.0 excise) taxes for fiscal incidence. SIC is included, making percent of GDP, with direct taxes contributing 43.8 percent up 0.5 percent of GDP. These are treated as deferred of collections, or 7.0 percent of GDP. PIT accounted for 24.5 income a person makes as contributions when they are percent of total revenue (3.9 percent of GDP). CIT, levied working, and this is, in effect, saving. The main tax not at 30 percent for resident companies and 37.5 percent included is CIT, which is excluded due to data limitations for non-resident companies, contributed 12.2 percent of and challenges in assigning its incidence to households. revenue (2.0 percent of GDP). Other direct taxes—such Non-tax revenues, accounting for 2.3 percent of GDP, are as withholding tax, rental income tax, and capital gains also excluded since they do not impose a direct burden tax—added another 7.1 percent of total revenue, or 1.1 on households. percent of GDP. About a third of Kenya’s public spending goes to Kenya's tax system, like many developing economies, social sectors, with the bulk allocated to education, relies heavily on indirect taxes—namely Value Added health, and social protection. Combined, these three Tax (VAT), excise duties, and customs duties—which areas account for 6.1 percent of GDP (Table 3). Education together accounted for 56.2 percent of total tax gets the largest share (4.6 percent of GDP), followed by revenue, or 9.0 percent of GDP in 2022/23 (Table 2). health (1.4 percent). Direct social protection transfers, VAT, charged at a general rate of 16 percent, contributed like cash transfers, make up just 0.2 percent of GDP. 25.4 percent of total tax revenue (4.1 percent of GDP). Kenya’s expenditure on social assistance is low compared Excise duties on goods such as petroleum, alcohol, and to global and regional benchmarks, and coverage is tobacco made up 12.4 percent (2.0 percent of GDP). low relative to need and international benchmarks. Customs duties on imports and exports, applied with Social assistance spending mainly supports the Older preferential rates for East African Community (EAC) Persons' Cash Transfer (OPCT). In addition to these direct and Common Market for Eastern and Southern Africa transfers, Kenya provides subsidies, including for fertilizer, (COMESA) members, added 6.0 percent of revenue (1.0 electricity, and fuel. The fertilizer subsidy is meant to percent of GDP). While essential to revenue generation, support food production, the electricity subsidy lowers this reliance on consumption taxes—typically less power costs for consumers, and the fuel subsidy helps progressive than income taxes—can limit the equity of reduce the impact of rising fuel prices on the cost of the tax system. living. The current analysis captures 36.5 percent of total government expenditures. Table 2: Kenya government revenue collection, 2022/23 KSh (million) % of GDP % of tax revenue Total revenue (tax and non-tax) 2,485,721 18.4 Taxes revenue 2,166,321 16.0 Direct taxes 948,289 7.0 43.8 Personal income tax (PIT) 530,232 3.9 24.5 Corporate income tax (CIT) 263,819 2.0 12.2 Withholding tax 154,238 1.1 7.1 Indirect taxes 1,218,032 9.0 56.2 Value added tax (VAT) 550,440 4.1 25.4 Excise tax 267,965 2.0 12.4 Customs duty plus levies 130,123 1.0 6.0 Other taxes on goods and services 269,528 1.9 12.4 Non-tax revenue 319,400 2.3 Not included in general revenue: social insurance contributions (SIC) 68,017 0.5 Total tax revenue included in the CEQ analysis 1,348,637 10.0 62.3 Source: Calculations based on tax revenue data from KRA and data from KNBS (2024). 28 PIT includes pay-as-you earn (PAYE) and other taxes on property. May 2025 | Edition No. 31 19 Special Focus Table 3: Kenya government social spending, 2022/23 % of total Expenditure Item KSh (million) % of GDP government expenditure Total government spending 3,147,132 23.3 Social spending of which 1,016,562 7.5 32.3 Direct transfers (Total cash and near cash) 30,079 0.2 1.0 Hunger Safety Net Program (HSNP) 4,557 0.03 0.1 Cash Transfer for Orphans and Vulnerable Children (CT-OVC) 6,677 0.05 0.2 Older Persons’ Cash Transfer (OPCT) 17,944 0.13 0.6 Persons with Severe Disabilities Cash Transfer (CT-PwSD) 901 0.01 0.03 Nutrition Improvement through Cash and Health Education (NICHE) 23 0.00 0.00 Total in-kind transfers 796,937 5.9 25.3 Education 613,300 4.6 19.5 Health 183,637 1.4 5.8 Non-social spending 189,546 1.4 6.0 Fuel 146,095 1.1 4.6 Fertilizer 17,147 0.1 0.5 Electricity 26,304 0.2 0.8 Total included in CEQ analysis 990,258 7.3 36.5 Source: Calculations based on expenditure data from the Kenya Economic Survey, 2023 and 2024. Kenya's fiscal space—the government's ability to fund income. The incidence curve in Figure 25a shows that public spending without risking financial stability—is richer households pay a higher share of their pre-fiscal shrinking due to rising public debt, increasing spending income in PIT. Figure 25b shows that direct taxes are needs, and slow revenue growth. Debt has risen concentrated in richer households: the first eight income because of heavy borrowing for infrastructure and social deciles pay less in PIT than their pre-fiscal income share, programs, which has increased debt servicing costs and while the ninth decile contributes proportionally. The top limited budget flexibility. At the same time, demands for decile, however, pays a higher share of PIT than their pre- spending on health, education, and social protection are fiscal income share, with the top two deciles accounting growing, while tax collection inefficiencies and economic for over 80 percent of the total PIT. Analysis shows a similar challenges make it harder to increase revenue. This financial pattern for SIC, where lower deciles pay a lesser share of strain limits the government’s ability to respond to crises their pre-fiscal income, and the top two deciles contribute or invest in development, leading to a rising fiscal deficit around 80 percent of the total. This shows that the burden and growing debt. In this challenging environment, fiscal of both PIT and SIC falls primarily on higher-income policy remains vital in reducing poverty and inequality. groups. The analysis is based on the proportion of market income paid in taxes by each income decile. Overall, the tax system is progressive, with the highest burden falling on higher-income individuals and households The apparent progressivity of Kenya’s PIT and SIC Each tax is examined individually to assess its impact, reflects not only the design of the tax system but also followed by an overall review of their progressivity.29 its limited coverage, largely due to the dominance of This analysis focuses only on how the tax system affects informality.30 A significant portion of Kenya’s labor force equity, without considering other factors like efficiency works in the informal sector, where incomes are low, (revenue generated vs. tax rates), simplicity, or ease of irregular, and difficult to track. These workers are often administration. unregistered for tax purposes and rarely contribute to SIC, resulting in lower-income deciles—where informality is Direct taxes, specifically PIT and SIC, are progressive, most prevalent—contributing very little to PIT and SIC, i.e. compared to the poor, the rich pay a larger share of even if they earn some market income. Consequently, direct taxes compared to their share in total pre-fiscal the top income deciles shoulder most of the tax burden 29 Most Kenyans (80 percent) work informally and lack social protection, with only 12 percent covered by social insurance, mainly formal workers under the National Social Security Fund (NSSF). The civil service is shifting from a costly, noncontributory pension to a contributory plan, while NSSF reforms to mandate higher contributions and pension payouts are stalled by legal issues. Voluntary schemes for informal workers have low participation due to trust and access challenges. Key reforms needed are modernizing NSSF, expanding informal coverage through outreach, and enforcing mandatory contributions. These reforms will improve retirement security, equity, and fiscal sustainability by extending protection to the majority now excluded. 30 About 80 percent of workers are in the informal sector. 20 May 2025 | Edition No. 31 Special Focus not only because they earn more, but also because they Broadening formalization and strengthening enforcement are more likely to be formally employed and captured are therefore critical to expanding the tax base and by the system. This narrow tax base also affects enhancing the fairness and long-term viability of Kenya’s the equity and sustainability of social insurance fiscal and social protection systems. schemes, as most informal workers remain excluded. Figure 25: Incidence and concentration share of PIT a. Incidence curve (percentage of pre-fiscal income, by decile) b. Concentration curve (percentage of total PIT, by decile) 10 80 8 60 6 Percent Percent 40 4 20 2 0 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel a: The incidence curve plots the percentage of pre-fiscal income paid in PIT by each income decile. Panel b: The bars represent the share of PIT allocated to each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. Box 3: Improving Kenya’s PIT framework Kenya could strengthen its PIT framework to enhance Figure 26: Kenya’s PIT average revenue remains above regional peers, but has declined over the last decade both progressivity and revenue mobilization. The Tax on income, profit, and capital gains of individuals (percent of GDP) country has a progressive PIT system, with five tax brackets 10 ranging from 10 to 35 percent under the Finance Act 2023, 8 and a top marginal rate of 35 percent. PIT is a key source of revenue, contributing an average of 26.6 percent of 6 Percent total tax revenue over the past five years. While Kenya’s 4 PIT performance remains above that of regional peers 2 (Figure 26), it has declined over the past decade—from 0 approximately 4.3 percent of GDP in 2014/15 to 3.4 Malaysia Ghana Singapore Africa Philippines Kenya Rwanda OECD South Africa percent in 2023/24. Kenya can improve the equity and efficiency of its PIT Source: OECD system by reducing exemptions and distortions that Note: Data is for 2022 for all other countries and average for 2014-2024 for Kenya. narrow the tax base and weaken revenue. Multiple Africa represents an unweighted average for the 36 African countries included in the publication Revenue Statistics in Africa 2024. deductions—such as housing levy, SHIF, NSSF, and contributions to post-retirement medical and pension funds—complicate the system and reduce transparency. Additional exemptions and reliefs, including those for capital gains, dividends in SEZs, and mortgage interest, further erode the base and disproportionately benefit higher-income individuals. Key reforms to broaden Kenya’s tax base, rationalize exemptions, and improve equity include: • Adjusting tax brackets and rates to reduce the burden on low-income earners and increase coverage among higher- income individuals. The current structure creates a near-flat tax rate for upper earners while disproportionately taxing low-wage workers. Raising marginal rates for top earners and lowering rates for the second bracket would improve progressivity and revenue. • Rationalizing exemptions and deductions to simplify the system and reduce revenue losses. Exemptions on capital gains (e.g., family transfers, 100% family-owned firms, SEZ dividends) create loopholes and favor wealthier individuals. The mortgage interest deduction, which benefits high-income borrowers, has become regressive and should be phased out to enhance PIT progressivity. May 2025 | Edition No. 31 21 Special Focus Box 3: Improving Kenya’s PIT framework (cont) • Aligning capital income tax rates with PIT to reduce avoidance and improve fairness. The current 15 percent withholding tax on capital income benefits wealthier taxpayers relative to the 35 percent top PIT rate. Harmonizing dividend tax rates across all taxpayers—residents and non-residents—would simplify enforcement and enhance equity. • Strengthening compliance , particularly among high-income earners, to broaden the PIT base. While many low-income informal workers fall below the taxable threshold, bringing them into the system supports better planning. Enforcement efforts should prioritize high-income non-compliance to boost progressivity and revenue (Ngugi et. al., 2025). Note: This box draws from the forthcoming Kenya Public Finance Review. Indirect taxes—namely VAT and excise duties—are progressive overall, with the top decile contributing a found to be mildly progressive in their combined disproportionately large share relative to its pre-fiscal direct and indirect effects. While their direct effects income, the pattern is less progressive when isolating are mildly progressive, the indirect effects are close to indirect effects. In fact, under the indirect incidence, distributionally neutral, limiting the overall redistributive the richest decile pays a smaller share of VAT relative to impact.31 Figure 27a shows that the total VAT burden—as its income, underscoring the heavier relative burden on a share of pre-fiscal income—increases with income, with the poor. This is compounded by the limited substitution richer households paying a larger proportion. However, options available to low-income households for the bottom deciles, particularly the poorest, still bear a taxed goods. A similar dynamic holds for excise relatively high burden. Since they spend a larger share duties (Figure 28). While they are more concentrated of their income on VAT-taxed goods like food, fuel, and among higher-income households due to their greater electricity, they are more exposed to indirect impacts of consumption of excisable goods such as fuel, alcohol, VAT on prices and suffer a disproportionate reduction and luxury items, the price effects on basic goods can still in the real purchasing power of their incomes. Figure weigh heavily on the poor. 27b further illustrates this: although VAT appears mildly Figure 27: Incidence and concentration share of VAT a. Incidence curve (percentage of pre-fiscal income, by decile) b. Concentration curve (percentage of total VAT, by decile) VAT (direct+indirect e ects) VAT (direct+indirect e ects) 3.0 40 35 2.8 30 2.6 25 Percent Percent 20 2.4 15 10 2.2 5 2.0 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel a: The incidence curve plots the percentage of pre-fiscal income paid in VAT by each income decile. Panel b: The bars represent the share of VAT allocated to each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. 31 The difference between the direct and indirect effects of VAT and excise duty lies in how households are affected. Direct effects occur when households pay tax on their own purchases. Indirect effects arise when taxes raise input costs, causing price increases even on untaxed or exempt goods—like food prices rising due to VAT on fuel. These indirect effects often hit poorer households harder, as they spend more on essentials. 22 May 2025 | Edition No. 31 Special Focus Figure 28: Incidence and concentration share of excise duty a. Incidence curve (percentage of pre-fiscal income, by decile) b. Concentration curve (percentage of total excise duty, by decile) Excise (direct+indirect e ects) Excise (direct+indirect e ects) 1.10 40 1.00 30 0.90 Percent Percent 0.80 20 0.70 10 0.60 0.50 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel a: The incidence curve plots the percentage of pre-fiscal income paid in excise duty by each income decile. Panel b: The bars represent the share of excise duty allocated to each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. Assessing the broader tax system, most taxes included consumed more by the better-off. However, their indirect in the analysis are progressive, especially PIT and SIC.32 effects, which capture how tax-induced price increases These instruments primarily affect formal sector workers ripple through the consumption basket, are neutral to and higher-income earners, while the poor—largely mildly regressive. In sum, Kenya’s tax system is broadly employed in the informal sector—are largely exempt. progressive, with higher-income households bearing the This makes PIT and SIC strongly progressive. By contrast, largest overall tax burden. However, the distributional VAT and excise duties tell a more nuanced story. Their impacts of the indirect effects of consumption taxes direct effects are mildly progressive, particularly for goods weakens the system’s overall redistributive impact. Box 4: Overview of Kenya’s VAT system Kenya’s VAT system applies a destination-based, multi-stage tax on the value added at each stage of production and distribution. The standard VAT rate is 16 percent, while a reduced rate of 8 percent applies to specific petroleum products to balance revenue needs with consumer affordability. Over the past decade, VAT collections have remained relatively stable at around 4 percent of GDP, except during FY2019/20 and FY2020/21, when domestic consumption fell in the wake of the COVID-19 pandemic. The VAT framework classifies goods and services as taxable, zero-rated, or exempt—each with distinct fiscal and distributional implications. Zero-rated goods—such as selected food items, pharmaceuticals, and exports—are taxed at 0 percent, allowing producers to claim input VAT refunds. This supports firm liquidity and keeps consumer prices lower, which benefits all consumers but especially low-income households. However, delays in processing refunds undermine the effectiveness of zero-rating and strain business cash flows. In contrast, exempt goods and services—such as education, financial services, residential rent, and some agricultural products—are not taxed, but input VAT cannot be reclaimed. This increases production costs, which may be passed on to consumers, reducing affordability, particularly for the poor. The VAT system has mixed effects on equity. While zero-rating of essential goods can be progressive, exemptions tend to be regressive, as the inability to reclaim input VAT raises costs that disproportionately impact low-income households. Moreover, both zero-rated and exempt items are often poorly targeted, with higher-income households reaping greater absolute benefits due to higher levels of consumption. As a result, despite intentions to shield vulnerable populations, the current VAT structure does not consistently achieve its equity goals and may exacerbate consumption inequality. 32 The distributional impact of Kenya’s tax system is assessed using the Kakwani Index, a widely used measure of tax progressivity. It is calculated as the difference between the tax concentration coefficient—a statistic similar to the Gini coefficient but applied to the distribution of tax payments—and the Gini coefficient of pre-tax income. A positive Kakwani Index indicates progressivity, where higher-income groups pay a larger share of their income in taxes than lower-income groups, thus reducing inequality. A negative value signals regressivity, increasing inequality, while a value near zero suggests a distributionally neutral tax. May 2025 | Edition No. 31 23 Special Focus Box 4: Overview of Kenya’s VAT system (cont) Kenya’s VAT performance is broadly in line with regional peers (Figure 29), but significant potential remains to enhance revenue mobilization and the system’s contribution to inclusive growth. Key priorities include better targeting of zero-rated goods to those most consumed Figure 29: VAT as a percentage of GDP by low-income households, expediting VAT refunds, Value added tax (percent of GDP, 2024) and avoiding further exemptions that narrow the tax 7 base and distort market incentives. Strengthening 6 compliance and broadening the tax base—rather 5 than raising rates—can improve efficiency and equity. Percent 4 Importantly, VAT reforms should be complemented 3 by targeted social protection programs to cushion 2 low-income groups. As Kenya advances its fiscal 1 0 consolidation agenda, aligning VAT policy more closely Nigeria Ghana Indonesia Tanzania Kenya Philippines Vietnam South Africa with equity objectives will be essential to ensure that tax reforms support both fiscal sustainability and poverty reduction. Source: National Treasury and World Bank (MFMOD). Social spending is broadly progressive, with poorer Most of Kenya’s direct cash transfer programs are households receiving a greater share of benefits relative to progressive, delivering a larger share of benefits to their income than richer households poorer households relative to their income. Programs This analysis looks at how social spending in Kenya is such as OPCT and NICHE are particularly well-targeted, distributed, starting with individual programs and with a substantial proportion of benefits reaching then assessing their overall impact. It recognizes households in the bottom three income deciles that simply increasing spending does not guarantee (Figure 30), reflecting strong progressivity. Similarly, better outcomes for the poor: if programs are poorly the CT-PwSD and the HSNP effectively reach households targeted or designed, benefits may end up going to in the lower half of the income distribution. NICHE stands richer households. The study reviews four main cash out for its strong targeting performance, combining transfer programs under the government’s flagship poverty-based and categorical criteria—specifically National Safety Net Programme (NSNP)—branded Inua focusing on pregnant women and children under two— Jamii. This includes the OPCT, CT-PwSD, C T-OVC, to concentrate support on those most in need. While the and the HSNP. A complementary program, NICHE, CT-OVC also reaches many low-income households, over is considered. NICHE provides top-up transfers and time it has expanded to include some in less poor deciles. nutrition counseling to vulnerable households in pilot This drift is likely due to two factors: (i) its eligibility criteria, counties. In addition to the cash transfers, the analysis centered on orphanhood, which is no longer strongly also includes public spending on education, health, and correlated with poverty33—a gap now being addressed subsidies for fertilizer and fuel. Transfers are considered through eligibility revisions supported by UNICEF; and (ii) progressive if poorer households receive a bigger share the relative potential for CT-OVC households to improve of the benefits compared to their share of total pre- their livelihoods over time, unlike households benefiting fiscal income, while richer households receive less. In from OPCT, CT-PwSD, or HSNP, which face more structural other words, if low-income groups get more benefits barriers to income mobility. This underscores the than their income level would suggest, the program importance of regular recertification to ensure continued helps those who need it most. This section looks at targeting accuracy. Overall, while Kenya’s cash transfer how transfers are spread across income levels (income programs are broadly pro-poor, further gains can be made deciles) to see how well they are targeted and how much in improving coverage, benefit adequacy, and dynamic they help reduce poverty and inequality. targeting. Introducing or strengthening recertification processes, particularly in programs like CT-OVC, could enhance both the equity and effectiveness of social protection spending. 33 Gelders, B. (2016). Child Vulnerability and Social Protection in Kenya. UNICEF. 24 May 2025 | Edition No. 31 Special Focus Figure 30: Most direct cash transfer programs are well-targeted to poorer households, but there is room for improvement a. Incidence curves (percentage of pre-fiscal income, by decile) CT-HSNP CT-OVC OPCT 2.0 2.5 4.0 1.6 2.0 3.0 1.2 Percent Percent Percent 1.5 2.0 0.8 1.0 0.4 1.0 0.5 0.0 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Decile CT-PwSD NICHE 0.5 0.0125 0.4 0.01 Percent 0.3 Percent 0.0075 0.2 0.005 0.1 0.0025 0.0 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Percent b. Concentration curves (percentage of total cash transfer, by decile) CT-HSNP CT-OVC OPCT 50 60 35 Percentage of tax/transfer Percentage of tax/transfer Percentage of tax/transfer 50 30 40 25 40 30 20 30 20 15 20 10 10 10 5 0 0 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Decile CT-PwSD NICHE 70 Percentage of tax/transfer Percentage of tax/transfer 80 60 70 50 60 40 50 30 40 30 20 20 10 10 0 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel a: The incidence curve plots the percentage of pre-fiscal income received in transfers by each income decile. Panel b: The bars represent the share of transfer received by each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. In-kind education benefits in Kenya are broadly Education (FDSE), which have helped lower-income progressive at lower levels but become less so at the households access schooling. However, this progressivity tertiary level, largely due to financial and structural declines sharply at the tertiary level. Public spending on barriers that limit poor students’ educational university education is more evenly distributed across progression. Spending on pre-primary, primary, and the income spectrum, but the ninth decile—among secondary education is pro-poor, with the lowest six the richest—receives a disproportionately large share. income deciles receiving a larger share of benefits This suggests that wealthier students are far more likely relative to their income (Figure 31). This reflects expanded to access and benefit from tertiary education. Poorer access to basic education, supported by policies such students face multiple barriers—such as transport costs, as Free Primary Education (FPE) and Free Day Secondary school fees, limited access to quality schools, and pressure May 2025 | Edition No. 31 25 Special Focus to enter the workforce early—that constrain their ability to quality schools that enhance progression to tertiary complete secondary school and qualify for university. As education. To address these imbalances, Kenya needs a result, public investment in tertiary education tends to to strengthen equity across the education system. benefit higher-income households, reinforcing inequality. This includes improving the quality of public basic In addition, disparities in attendance and education education, boosting learning outcomes, and increasing quality affect the distribution of benefits even at lower completion rates—particularly for poor students. Key education levels. Some low-income children do not measures could include better-targeted scholarships, attend school at all, reducing their share of pre-primary support for students at risk of dropping out, and and primary benefits. Meanwhile, richer households targeted interventions to reduce the structural barriers are more likely to send their children to better- poor children face. Figure 31: In-kind education benefits are pro-poor at lower levels but less equitable in tertiary education a. Incidence curves (percentage of pre-fiscal income, by decile) Pre-primary education Primary education 0.6 7.0 0.5 6.0 5.0 0.4 4.0 Percent Percent 0.3 3.0 0.2 2.0 0.1 1.0 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Secondary education Tertiary education 14.0 2.9 12.0 2.7 10.0 2.5 8.0 2.3 Percent Percent 6.0 2.1 4.0 1.9 2.0 1.7 0.0 1.5 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile b. Concentration curves (percentage of total in-kind education benefits, by decile) Pre-primary education Primary education 35.0 35.0 30.0 30.0 25.0 25.0 Percent 20.0 Percent 20.0 15.0 15.0 10.0 10.0 5.0 5.0 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Secondary education Tertiary education 35.0 35.0 30.0 30.0 25.0 25.0 Percent 20.0 Percent 20.0 15.0 15.0 10.0 10.0 5.0 5.0 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel 1: The incidence curve plots the percentage of pre-fiscal income received in education benefits by each income decile. Panel b: The bars represent the share of education benefits received by each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. 26 May 2025 | Edition No. 31 Special Focus In-kind health benefits are broadly progressive, expanded outreach, and efforts to reduce financial and meaning that public health spending delivers more geographic barriers that still prevent some of the poorest support to lower-income households relative to their Kenyans from accessing care. income. As shown in Figure 32, the poorest seven deciles receive a disproportionately large share of both in-patient Direct subsidies are neutral to mildly regressive, while and out-patient health services, while the richest three indirect subsidies are more evenly spread across all deciles receive less. This indicates that most public health income groups.34 Subsidies tend to primarily benefit resources are reaching those who need them most, middle- and upper-income households. The fuel subsidy consistent with equity goals in health service delivery. is used for illustrative purposes. Although it was in effect The pro-poor distribution reflects the extensive use of only from April 2021 to May 2023, its inclusion in the public health facilities by lower-income households, who analysis provides valuable insights into the poverty and rely more heavily on government-funded services due to equity impacts of consumption subsidies. The poorest five limited access to private care. Middle-income households deciles receive direct subsidies roughly in line with their also benefit to a degree, suggesting a reasonably broad share of income, while deciles six to eight—representing reach of the health system. However, the effectiveness middle-income households—capture a larger share. The of this progressivity depends not just on the distribution richest decile receives less than their income share (Figure of spending, but also on the quality and accessibility of 33b), but the overall pattern indicates that direct subsidies services, especially in underserved rural and informal urban are not effectively pro-poor. This may stem from the fact areas. Sustaining and improving this equity will require that middle- and higher-income households are more likely continued investment in public health infrastructure, to consume subsidized goods or services, in this case fuel Figure 32: In-kind health benefits are pro-poor a. Incidence of in-kind health benefits (percentage of pre-fiscal income, by decile) Inpatient health Outpatient health 0.6 2.5 0.5 2.0 0.4 1.5 Percent Percent 0.3 1.0 0.2 0.1 0.5 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile b. Concentration share of in-kind health benefits (percentage of total in-kind health benefits, by decile) Inpatient health Outpatient health 35.0 35.0 30.0 30.0 25.0 25.0 20.0 20.0 Percent Percent 15.0 15.0 10.0 10.0 5.0 5.0 0.0 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel 1: The incidence curve plots the percentage of pre-fiscal income received in health benefits by each income decile. Panel b: The bars represent the share of health benefits received by each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. 34 Direct subsidies provide financial support directly to consumers or producers, typically through grants, cash transfers or direct payments. Indirect consumption subsidies (e.g., fuel, electricity) lower prices for consumers. Indirect production subsidies (e.g., fertilizer support) benefit producers through market price support, direct payments, or input subsidies. These input subsidies often pass through to consumers by reducing the cost of final goods, both directly and indirectly. As with indirect taxes, the model captures both the direct and indirect effects of the fertilizer subsidy. The direct component refers to the effect due to a change in the price of fertilizer because of the subsidy, while the indirect component refers to the effect due to changes in the prices of other goods and services that use fertilizer as an input. The direct component is calculated by applying the statutory subsidy rate to the retail price of fertilizer, while the indirect effect is calculated by employing Kenya’s Input-Output (IO) table and a cost-push approach to capture the effect of the change in fertilizer price on the prices of other goods. May 2025 | Edition No. 31 27 Special Focus and fertilizer, at higher levels than the poor. In contrast, Among the various channels of social spending indirect effects of subsidies—typically embedded in the analyzed, cash transfers emerge as the most prices of inputs or services like agricultural support— progressive form of government support and the are more evenly spread across income groups, indicating most effective in targeting poor households. Cash a neutral distribution. Fertilizer subsidies provide a more transfer programs such as the OPCT, PWSD-CT, and nuanced picture. While most income groups from the NICHE effectively reach lower-income groups. These first to ninth decile receive a share of the subsidy greater programs provide a greater share of benefits to the than their income share, some poorer deciles (1 and 5) poorest deciles, helping reduce income inequality. are underrepresented (Figure 33d), suggesting leakage or Following cash transfers, in-kind benefits—particularly barriers to access. The richest decile receives less than its in primary and secondary education, pre-primary income share, which partially offsets the regressive nature of education, and outpatient and inpatient health the distribution. A similar trend is seen with indirect effects services—also show a pro-poor distribution. These of fertilizer subsidies; they tend to be more evenly spread services tend to benefit poorer households more across all income groups with each decile receiving a share relative to their income, due, in part, to widespread proportionate to their share in pre-fiscal income, indicating access initiatives such as FPE, (FDSE), and subsidized a missed opportunity to enhance the instrument’s healthcare in public facilities. Fertilizer subsidies, progressivity. However, these findings are based on early both in their direct and indirect effects, show implementation data from the September 2022 rollout, moderate progressivity, as they tend to benefit a when access was still limited, and should be interpreted wide range of farmers, including many in the lower- cautiously. Overall, these results underscore the need to income deciles. However, access remains uneven, and redesign subsidies and improve targeting mechanisms to the poorest households still face barriers, such as lack better reach the poorest households. Without such reforms, of land or inputs, that may limit their participation Kenya risks spending substantial public resources on in agricultural programs. In contrast, other indirect transfers that reinforce inequality rather than reduce it. subsidies—like those for fuel—are regressive, meaning Figure 33: Subsidies mostly benefit middle- and upper-income households a. Incidence of the fuel subsidy (percentage of pre-fiscal income, b. Concentration share of the fuel subsidy (percentage of total fuel by decile) subsidy, by decile) Fuel subsidy (direct+indirect e ects) Fuel subsidy (direct+indirect e ects) 0.017 30.0 0.016 25.0 0.015 20.0 0.014 Percent Percent 15.0 0.013 10.0 0.012 5.0 0.011 0.0 0.010 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile c. Incidence of the fertilizer subsidy (percentage of pre-fiscal income, d. Concentration share of the fertilizer subsidy (percentage of total by decile) fertilizer subsidy, by decile) Fertilizer subsidy (direct+indirect e ects) Fertilizer subsidy (direct+indirect e ects) 0.12 35.0 30.0 0.10 25.0 0.08 20.0 Percent Percent 0.06 15.0 0.04 10.0 0.02 5.0 0.00 0.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Deciles are ranked by pre-fiscal income. Panel 1: The incidence curve plots the percentage of pre-fiscal income received in subsidies by each income decile. Panel b: The bars represent the share of each subsidy received by each decile, while the dotted line indicates the share of pre-fiscal income held by each decile. 28 May 2025 | Edition No. 31 Special Focus they benefit richer households disproportionately. This Figure 34: Most Kenyan households benefit from the tax and transfer system is because higher-income groups consume more of these subsidized goods and services, reducing the equity 40 impact of public spending. 30 Education It is important to emphasize that this analysis focuses 20 All health bene ts on the distributional effects of selected taxes and Percent Indirect subsidies 10 Direct transfers spending—how resources are spread across income Indirect taxes 0 groups—not on the efficiency or overall effectiveness Soc. Ins. Contributions of these policies. While progressivity is a key objective -10 Personal income taxes Net total position for reducing inequality, a good fiscal policy must also -20 Net cash position 2 3 4 5 6 7 8 9 Poorest Richest ensure economic efficiency, administrative feasibility, and alignment with national priorities. Ultimately, a Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the well-designed tax and transfer system should mobilize CEQ methodology. Note: Deciles are ranked by pre-fiscal income. The net cash position corresponds to the sufficient revenue to fund essential services and system including all direct and indirect tax, transfers and subsidies. It excludes in-kind education and health benefits. The total net position refers to the system including all infrastructure and also target spending effectively to components, i.e., including in-kind education and health benefits. support both equity and long-term development. Residents of rural areas and ASALs are the primary beneficiaries of the tax-benefit system, mainly due 3.3 What is the overall impact of taxes and spending on poverty and inequality? to substantial in-kind education transfers.35 Rural households receive net benefits equivalent to about 9 Lower-income households receive more from the fiscal percent of their final income, largely driven by education system than they contribute spending that accounts for around 10 percent. In contrast, Lower-income households receive more in public urban households tend to be net contributors, paying, on benefits than they pay in taxes, while higher-income average, 6 percent of their final income in taxes and social households contribute more than they receive. In insurance, while receiving fewer in-kind transfers. A similar 2022, the bottom eight deciles were net beneficiaries pattern exists between ASAL and non-ASAL residents: and the top two net contributors, with average net ASAL communities benefit more from the system, benefits equal to 1.3 percent of final income (Figure whereas non-ASAL residents contribute more than they 34). The composition of transfers is key to this outcome. receive. Notably, if in-kind transfers, especially education, In-kind education benefits are the most significant, were excluded, all groups across rural, urban, ASAL, and averaging 10 percent of final income, while in-kind non-ASAL areas would become net contributors. This health and cash transfers contribute 0.9 and 0.5 percent, underscores the critical role that public investment in respectively. However, when only cash transfers are education plays in supporting disadvantaged and rural considered, progressivity weakens sharply—only the populations, helping to balance regional inequalities poorest decile remains a net beneficiary. This underscores within Kenya’s fiscal system. the limited scale and coverage of Kenya’s cash transfer programs and the need to expand them to better support Taxes, subsidies, and social spending reduce inequality the poorest. On the tax side, nearly all households pay but together reduce disposable income for low-income households, thus increasing poverty something, primarily through indirect taxes like VAT and excise duties, which reduce incomes by about 3.3 Taxes, subsidies, and direct transfers lead to a net percent on average. While direct taxes (4.0 percent) and increase in poverty, largely because the limited value SIC (2.7 percent) are concentrated among the richer, of cash transfers and subsidies does not offset the indirect taxes affect even the poorest households, partly heavier burden of indirect taxes on poor households. offsetting the redistributive impact of transfers. Overall, Excluding in-kind benefits like education and health, the net benefits decline steadily with increasing income, combined effect of fiscal measures raises the poverty with the poorest decile receiving the largest gain— headcount by 2.7 percentage points and the poverty gap equivalent to about one-third of their final income— by 0.6 percentage points (Figure 35). This is because the primarily through cash transfers and education spending. combined impact of indirect taxes (like VAT and excise 35 Due to limited formal economic activity, residents in these areas are less likely to pay direct taxes. May 2025 | Edition No. 31 29 Special Focus Figure 35: Kenya’s tax and transfer system reduces inequality but slightly increases poverty a. Impact on poverty headcount rate, overall b. Inequality (Gini index) at pre-fiscal income to final income Poverty headcount Poverty gap 45 45 42.3 40.1 40.5 40 38.3 38.0 37.7 39.6 39.8 35.5 40 35 35 30 30 Poverty (%) 25 Gini index 25 20 20 15 15 10.4 10.7 10.1 11 10 10 5 5 0 0 Market income Net market Disposable Consumable Market income Net market Disposable Consumable Final plus pensions income income income plus pensions income income income income Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. duties) and direct taxes exceeds the relief provided by Inequality is higher in urban and non-ASAL areas, but subsidies and cash transfers. While cash transfers provide taxes and transfers have a stronger redistributive effect some relief, they are insufficient to counterbalance the in these regions. Urban inequality fell by 4.2 points (from impact of taxes. The poverty impact is more pronounced 37.0 to 32.8), compared to a 3.6-point drop in rural areas. in urban and ASAL areas: urban poverty increases by 3.7 Similarly, non-ASAL counties saw a 5.6-point reduction in percentage points, compared to 1.9 points in rural areas, the Gini, while ASAL regions experienced smaller declines while arid counties see a 3.0-point rise, followed by 2.7 of 2.5 and 3.2 points, respectively. points in semi-arid and 2.5 in non-ASAL areas. These Kenya's use of untargeted subsidies, combined with slow findings highlight the need to enhance the adequacy revenue growth, restricts the country’s ability to invest in and targeting of transfer programs and re-evaluate the more efficient and targeted support for the poor structure of indirect taxes. They also underscore the need Estimates of the marginal contributions36 of Kenya’s for regionally tailored policies that address the unique fiscal instruments reveal two key findings. First, in-kind vulnerabilities and economic dynamics of each area. transfers, especially in education and health, have the greatest impact in reducing inequality, driven by their Kenya's tax and transfer system reduces inequality. It large share of social spending. Second, while some cash lowered the Gini index by 4.6 points in 2022—from 40.1 transfers, such as CT-OVC and OPCT, are well-targeted before fiscal interventions to 35.5 after (Figure 35). In-kind and efficient, their overall impact remains limited due benefits, particularly health and education, account for to low coverage and benefit levels. Excluding in-kind the largest share of this reduction (2.2 points), followed transfers, all cash programs reduce poverty (Figure 36), by direct taxes (1.8 points) and cash transfers (0.3 points). with CT-OVC and OPCT showing the strongest marginal In-kind transfers, especially in education and health, have the greatest impact on inequality reduction Photo: ©Sarah Farhat/World Bank 36 Marginal contribution measures the impact of a tax or transfer on poverty and inequality by comparing the outcomes with and without that specific instrument (Lustig, 2018). They provide a clear measure of how each instrument affects inequality and poverty, showing both its size and progressivity. A positive marginal contribution means the instrument helps reduce inequality or poverty, while a negative one indicates the opposite. 30 May 2025 | Edition No. 31 Special Focus Figure 36: Secondary education transfers have the greatest impact on poverty reduction, while PIT most effectively reduces inequality a. Change in poverty b. Change in inequality 1.88 Tertiary education 0.37 VAT (direct+indirect e ects) Fuel subsidy (direct+indirect e ects) 0.00 Personal Income Tax 0.68 NICHE -0.00 0.63 Fertilizer subsidy (direct+indirect e ects) -0.003 -0.00 Excise (direct+indirect e ects) CT-PwSD -0.02 Social Insurance Contrinutions 0.12 Social Insurance Contributions -0.03 NICHE 0.00 Inpatient health -0.05 Pre-primary education -0.06 CT-PwSD 0.00 CT-HSNP -0.10 Fuel subsidy (direct+indirect e ects) -0.02 CT-OVC -0.11 Excise (direct+indirect e ects) -0.12 Fertilizer subsidy (direct+indirect e ects) -0.03 VAT (direct+indirect e ects) -0.19 CT-HSNP -0.08 OPCT -0.21 Outpatient health -0.21 CT-OVC -0.10 Primary education -0.69 OPCT -0.38 Secondary education -1.72 Personal Income Tax -1.81 -0.50 0.00 0.50 1.00 1.50 2.00 -2.00 -1.50 -1.00 -0.50 0.00 0.50 Percentage points Gini points Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Figures present marginal contribution of different taxes and transfers, ranked by their effectiveness in reducing inequality and poverty. effects—though still constrained by underinvestment. many of which tend to disproportionately benefit On the tax side, all major taxes increase poverty, with VAT better-off households, the government’s ability to having the largest effect, raising the poverty headcount invest in critical pro-poor sectors like social protection, by 1.8 percentage points. In contrast, PIT is the most health, and education is limited. For example, in the effective in reducing inequality, lowering the Gini 2022/23 fiscal year, Kenya allocated about 1.4 percent coefficient by 2.3 points. Cash transfers like CT-OVC and of GDP to subsidies such as fertilizer support, while OPCT contribute modestly to inequality reduction, while direct transfers received only 0.2 percent of GDP. Yet, others have minimal impact. Notably, in-kind tertiary direct transfers delivered a greater impact: each one education increases inequality by 0.4 points, as benefits percent of GDP spent on them reduced poverty by 2.7 are concentrated among higher-income groups. percentage points and inequality by 1.97 Gini points, compared to a 2.3-percentage point poverty reduction An analysis of cost-effectiveness reveals that direct and just 0.15 Gini point decline from subsidies (Figure transfers are more efficient than subsidies in reducing 37). These findings underscore that direct cash and poverty and inequality. With fiscal space increasingly near-cash transfers are a more cost-effective tool for constrained by substantial spending on subsidies, tackling poverty and inequality in Kenya. Figure 37: Direct transfers are more cost effective at reducing both poverty and inequality than subsidies a. Change in poverty, per 1% of Kenya's GDP (percentage points) b. Change in Gini, per 1% of Kenya's GDP (Gini points, with the Gini index measured between 1-100)) -0.15 -2.3 Percent Percent -2.7 -1.97 Direct transfers Subsidies Direct transfers Subsidies Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Note: Cost-effectiveness is points of poverty or Gini index reduction per one percent GDP spent. Direct transfers include all cash benefits. May 2025 | Edition No. 31 31 Special Focus Box 5: The gendered impacts of Kenya’s fiscal policy Kenya’s fiscal policy reduces overall income inequality and narrows gender gaps in some household types— but has limited impact where unpaid care burdens are high. Using a gendered CEQ (e-CEQ) approach, this study classifies households by gender, income contribution, and caregiving roles to assess how taxes and transfers affect men and women differently. Key findings • Benefit incidence : Female-headed households benefit more than male-headed ones, especially through in-kind education and rural-targeted transfers. Most male-headed households are net payers from the eighth decile upward, while female-headed households remain net receivers up to the ninth decile. Households where women earn most of the income are net beneficiaries. Conversely, male-majority earner households are often net payers. Households without a clear income majority also benefit more, especially from in-kind education. • Poverty : While the gender poverty gap narrows, this is mainly due to rising poverty among male-type households. Fiscal policy actually increases overall poverty—especially for male-headed households without dependents. • Inequality : Fiscal policy reduces income inequality across all household types, with slightly greater gains for female- headed and women-earner households. In-kind transfers, especially education, are the most effective drivers of equity, followed by direct taxes and cash transfers. • Caregiving gaps : In households with dependents (children or elderly), gender disparities narrow less—or even widen—indicating that caregiving burdens limit the redistributive effect of fiscal policy. Policy implications • Strengthen and expand targeted in-kind and cash transfers, especially for households with caregiving responsibilities. • Prioritize rural female-headed households in social programs to maximize equity impacts. • Recognize and address unpaid care work in fiscal design to ensure fairer outcomes across gender and household types. In households with dependents (children or elderly), gender disparities narrow less—or even widen Photo: ©Dominic Chavez/World Bank 32 May 2025 | Edition No. 31 Special Focus Box 6: The redistributive impact on children Children make up 42 percent of Kenya’s population, yet they experience disproportionately high levels of poverty and deprivation, especially in ASAL counties. This analysis, using the CEQ for Children (CEQ4C) framework, uncovers how Kenya’s fiscal system affects child well-being across income, services, and regional dimensions. Key findings • Child poverty is multidimensional and widespread : One in three children suffer both income poverty and multiple deprivations, especially in high-poverty counties with limited access to water, sanitation, and housing. Even in non-poor households, 26.6 percent of children lack basic services. Child poverty reaches a staggering 73 percent in ASAL regions, versus 38 percent in non-ASAL zones. • Fiscal policy raises child poverty and does less to reduce inequality for children : Child monetary poverty is 2.2 percentage points higher than the overall population’s poverty headcount at the pre-fiscal income level and 2.5 percentage points higher at the consumable income level. While fiscal policies reduce inequality, the impact is smaller for children than for the general population. • Benefits do not reach the most deprived : Public spending is progressive but not pro-poor—children in richer households capture disproportionate shares of health and education spending. The most deprived children receive only 6 percent of health spending, while better-off children (1–2 deprivations) receive 40 percent. • Social protection programs are generally well-targeted but too small : Programs like NICHE and CT-PwSD reach the poorest children—9 in 10 beneficiaries are multidimensionally poor—but coverage is limited, and the inclusion of better-off households, over time, dilutes impact. Strengthening recertification and eligibility rules is essential. • Simulations suggest scaling up and increasing transfers could deliver results : Expanding CT-OVC to all extremely poor households with children could reduce inequality by 0.534 Gini points. Expanding NICHE to all food-poor households cuts child poverty by 0.553 percentage points. Raising monthly transfer values to KSh 3,000 lowers poverty by 0.4 points, though impact remains modest due to limited coverage. Policy Implications • Reform targeting systems : Update eligibility criteria and establish regular recertification to ensure programs reach the poorest and avoid leakage to the non-poor. • Expand program coverage : Scale up CT-OVC, NICHE, and similar programs to cover all extremely poor or food-poor households with children, prioritizing ASAL and rural areas. • Increase transfer adequacy : Raise transfer values to deepen poverty reduction, indexing them to inflation for sustained impact. • Prioritize children from poor households in public spending : Redirect education and health budgets to favor the most deprived children, improving both access and service quality. • Combine cash with services : Pair expanded cash transfers with investments in nutrition, education, and health to tackle the root causes of child poverty. In sum, Kenya’s fiscal system currently leaves behind its most vulnerable citizens—children. Stronger, fairer, and more comprehensive policies are essential to break the cycle of poverty and invest in the country’s future human capital. May 2025 | Edition No. 31 33 Special Focus 3.4 What improvements to Kenya’s fiscal with better-designed, larger, and better-targeted fiscal policy could enhance its effectiveness interventions, Kenya could achieve meaningful poverty in reducing poverty and inequality? reduction similar to these countries. International comparisons indicate that Kenya has significant potential to achieve stronger poverty reduction Kenya’s fiscal policy reduces inequality, but less through fiscal policy effectively than in many peer and upper-middle income Unlike many countries where fiscal policy effectively countries, indicating significant room for stronger lowers poverty, Kenya currently experiences a net redistributive impacts. Cross-country comparisons of increase in poverty due to the balance between fiscal impacts on inequality reveal wide variation (Figure taxes and cash transfers. In 2022, Kenya’s taxes and 38a). In 2022, Kenya’s fiscal system reduced the Gini transfers combined to raise the poverty headcount by coefficient by 4.6 points—below the levels achieved by 2.5 percentage points overall. By comparison, countries most countries, except for a few lower-middle- and low- such as South Africa, Georgia, Turkey, Argentina, Iraq and income countries such as Ghana, Cameroon, Burkina Brazil use fiscal policy to significantly reduce poverty, Faso, Mali, Niger, and The Gambia. While wealthier while Kenya, Tajikistan, and Chile face increases. The key nations typically achieve greater redistribution, these challenge for Kenya is that cash transfers remain too small, comparisons underscore Kenya’s potential to enhance and their effects are insufficient to offset the burden the effectiveness of its fiscal system in reducing of taxation on poorer households. This highlights that inequality. Figure 38: Kenya could achieve stronger distributional impacts a. From market to consumable income (excludes in-kind benefits) Direct taxes and cash transfers Indirect taxes and subsdies 4 2 0 Gini points -2 -4 -6 -8 -10 -12 South Africa (2014/15) Mozambique (2020) Burkina Faso (2014) Morocco (2017) Colombia (2017) Costa Rica (2020) Cameroon (2022) Indonesia (2017) Gambia (2016) Tanzania (2018) Mauritius (2017) Ethiopia (2018) Jordan (n/a) Ivory Coast (2019) Guinea (2019) Argentina (2017) Senegal (2019) Djibout (2017) Ghana (2023) Turkey (2016) Kenya (2022) Malaysia (2019) Vietnam (2018) Niger (2014) Benin (2019) Iraq (2017) Iran (2021) Brazil (2019) Mali (2014) Peru (2019) Upper middle-income Lower middle-income Low income b. From market to consumable income to final income (includes in-kind benefits) Direct taxes and cash transfers In-kind transfers 0 -4 Gini points -8 -12 -16 -20 Argentina (2017) Brazil (2019) Costa Rica (2020) Colombia (2017) Mauritius (2017) Iran (2021) Iraq (2017) Turkey (2016) Malaysia (2019) Jordan (n/a) Peru (2019) Indonesia (2017) Tanzania (2018) Ivory Coast (2019) Djibout (2017) Morocco (2017) Senegal (2019) Vietnam (2018) Kenya (2022) Ghana (2023) Cameroon (2022) Mozambique (2020) Burkina Faso (2014) Ethiopia (2018) Mali (2014) Niger (2014) Benin (2019) Gambia (2016) Guinea (2019) South Africa (2014/15) Upper middle-income Lower middle-income Low income Source: Authors’ construction based on the following CEQ studies: Amjad et al. (2023); Benicio et al (2021); Bridi et al (2023); Cancho (2017); Foeli and Maynor (2022); Goldman et al (2021); Haydeeliz et al. (2022); Hounsa et al (2019); Jellema et al (2017); KNBS and UON (2021); Lopez et al (2021); Malaeb et al (2023); Martínez-Aguilar et al (2017); Scott (2014); Tekgüç and Değer (2023); Younger et al (2017); and World Bank (2018). 34 May 2025 | Edition No. 31 Special Focus Expanding the coverage and adequacy of cash transfers, of this policy scenario—raising benefits under the along with increased investment in education and health, four flagship programs (CT-OVC, OPCT, CT-PwSD, and holds strong potential to reduce poverty and inequality. CT-HSNP) to KSh 3,000 per month—suggest limited These efforts could be partly financed through cuts to untargeted subsidies and VAT reform to better support impact on the overall poverty rate (Figure 39). The pro-poor spending poverty gap would decline by 0.2 percentage points, Building on the preceding analysis, Kenya can nationally. This highlights that current benefit levels strengthen its fiscal system to better support the poorest are inadequate to meaningfully reduce poverty and households. Although more rigorous policy scenario inequality, underscoring the need to both expand and analysis is needed to fully assess trade-offs—especially deepen support through direct transfers. It is important those involving productivity growth, redistribution and to recognize that the poverty-reducing effects of cash equity as well as fiscal and debt sustainability37—the transfer programs typically emerge not from a findings highlight several key areas for reform. one-time boost to consumption, but over time, as households invest a portion of their transfers in Expanding cash transfers and enhancing their adequacy productive assets, human capital, and enhanced labor market participation. These dynamic impacts Scaling up and improving the adequacy of cash lie beyond the scope of the static analysis presented transfers will facilitate a stronger reduction in poverty in this paper but are critical to keep in mind, as they and inequality. While enhanced targeting and benefit represent the primary pathway through which cash adequacy are important, expanding the coverage of transfers reduce poverty in the long term. cash transfer programs to a greater number of poor and vulnerable households holds the most promise To maximize the impact of increased transfers, reforms for substantial reductions in poverty and inequality. must be paired with efforts to enhance program This entails both improving targeting and increasing effectiveness. Strengthening targeting and delivery, benefit adequacy. A strategic expansion of direct especially in programs like the Cash Transfer for Orphans cash transfers should focus on extending coverage and Vulnerable Children (CT-OVC), can ensure benefits to poor and vulnerable households. Estimates in the reach the most vulnerable, while minimizing leakage to forthcoming Kenya Public Finance Review indicate better-off households. Key delivery system improvements, that raising the transfer amount to KSh 3,000 per such as the rollout of the Harmonized Targeting month would significantly enhance benefit adequacy, Methodology and Enhanced Single Registry, can boost reaching the international benchmark of 25 percent of recipient household consumption. Even with inflation efficiency, reduce duplication, and enable future scale- adjustments every five years, such a reform remains up. However, these gains will be limited without a robust fiscally sustainable. It would increase total social monitoring and evaluation system to track performance, assistance spending from the current 0.3 percent to identify gaps, and inform course corrections. Taken about 1.0 percent of GDP—aligning Kenya with the together, these reforms would significantly improve the average for lower-middle-income countries. Simulations equity and impact of Kenya’s social protection system. Figure 39: Raising transfers to KSh 3,000 has limited impact on poverty and inequality, signaling benefit levels are too low a. Change in poverty rate (percentage points) a. Change in Gini index (Gini points) -0.03 -0.14 -0.09 -0.17 -0.14 -0.13 -0.18 -0.4 -0.52 -0.8 -0.84 -0.48 National Urban Rural ASAL ASAL (semi- Non-ASAL National Urban Rural ASAL ASAL Non-ASAL (arid) arid) (arid) (semi-arid) Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. 37 More rigorous policy scenario analysis which considers broader fiscal policy trade-offs and long-term investment strategies is contained in the companion Kenya Public Finance Review, which complements this analysis with a macro-fiscal and structural reform lens. May 2025 | Edition No. 31 35 Special Focus Reducing untargeted subsidies and implementing substantial fiscal savings of KSh 505.5 billion (3.4 strategic VAT reforms to support the expansion of cash percent of GDP) annually. However, this approach transfer programs would disproportionately impact the poor, with full The necessary scale-up of cash transfers can be strategically compensation costing KSh 167.7 billion. A targeted financed through a combination of tapering off regressive compensation strategy could reduce this cost to KSh subsidies and implementing well-designed VAT reforms. 42.3 billion but would still leave significant net gains of KSh 337.8 billion. Reassessing and minimizing the use of untargeted • Targeted reforms offer progressive alternatives: Selective subsidies presents a vital opportunity for fiscal savings. removal of exemptions on items less consumed by the Direct transfers offer a significantly more cost-effective poor (e.g., non-food luxury goods, red meat) provides a approach to reducing both poverty and inequality more equitable path. Scenario 1 delivers fiscal savings compared to subsidies. In the context of Kenya’s of KSh 78.4 billion with minimal adverse welfare effects. increasingly constrained fiscal space, re-evaluating the • Rate adjustment can enhance acceptability. Scenario 2 substantial expenditure on untargeted subsidies— combines strategic exemption removal with a VAT rate many of which disproportionately benefit wealthier reduction to 14 percent, still producing positive fiscal households—could unlock essential resources for returns (KSh 14.5 billion) while potentially mitigating investment in pro-poor sectors such as social protection, public resistance. Conversely, increasing the VAT rate health, and education. to 18 percent (Scenario 3) could also generate positive net fiscal gains, even after accounting for the cost of In parallel, well-targeted VAT reforms, especially compensating households affected by the resulting when paired with complementary social protection increase in poverty. measures, can significantly enhance Kenya’s fiscal space without undermining the welfare of its most These fiscal reforms, by freeing up resources from vulnerable citizens. Simulations of various reform inefficient subsidies and generating new revenue scenarios reveal a clear trade-off between revenue streams from VAT, provide a sustainable pathway to scale generation and social impact (Table 4). up cash transfers. This expansion in coverage, coupled • Broad VAT reform yields high revenue but carries social with adequate benefit levels, will have a significant impact costs: Eliminating all VAT exemptions could generate on reducing overall poverty and inequality in Kenya. Table 4: Illustrative policy simulations – Well-targeted VAT reforms can minimize poverty and inequality impacts A B C D A-C Fiscal savings Change in the Change in the Amount Net fiscal (in billion KSh), poverty rate, Gini index, needed impact, Expenditure Item annually relative to relative to the for welfare annually, the baseline baseline neutrality, in billon KSh (percentage (Gini points) in billion KSh) points) Scenario 1: Remove exemptions on items that are small in the poor’s consumption 78.4 0.05 -0.01 26.0 52.4 basket and red meat Scenario 2: Remove exemptions on items that are small in the poor’s consumption 29.5 0.12 -0.03 15.0 14.5 basket and red meat AND reduce VAT to 14 percent Scenario 3: Increase VAT to 18 percent 49.1 0.22 -0.02 16.3 32.8 Source: Authors' calculations based on KCHS 2022, fiscal administrative data, and the CEQ methodology. Notes: To achieve welfare neutrality, consumption is held constant for everyone, representing an upper bound for compensation as it fully offsets welfare losses. A more targeted alternative would focus on maintaining consumption levels for the poor while raising the consumption of those pushed into poverty only up to the poverty line, rather than restoring their original levels. Non-food items that are small in the poor’s consumption basket: TV subscription fees, tooth paste/mouth wash, traditional beer, ferry/boat fares, taxi fares (non-matatu/boda boda), pet food, courier services, marijuana, club membership fees, train fares, post office private rental box, amusement park fees; Red meat: beef, goat/camel/rabbit meat, mutton, pork, offals, minced meat; Other food items that are small in the poor’s consumption basket: white wheat flour, avocado, coffee, popcorn. 36 May 2025 | Edition No. 31 Special Focus Invest more in quality education and health, especially in access to quality basic education delivers especially high underserved areas returns, and ensuring equitable access at all levels is crucial. To reduce inequality and promote long-term economic This is particularly important given that in-kind benefits mobility, Kenya must increase investment in primary at the tertiary level disproportionately benefit wealthier and secondary education and public healthcare, with households, as children from poorer families are less likely to a focus on more targeted and efficient spending. This reach tertiary education. A key constraint is the reluctance report highlights that the fiscal system’s redistributive of qualified teachers and healthcare professionals to work impact is largely driven by in-kind benefits in these in underserved areas. Addressing this challenge requires sectors. However, the analysis does not account for service reforms that prioritize equitable deployment, targeted quality, a critical determinant of real impact. Persistent infrastructure investment, and more progressive resource disparities in school attendance, education quality, and allocation. Incentivizing service in hard-to-reach areas healthcare access, particularly in rural and arid regions, through professional development, housing support, continue to undermine the progressive potential of clear career progression, and rural hardship allowances is public spending. Enhancing the quality of education vital to improve service delivery and reduce staff turnover. and health services is therefore essential to improving The rollout of Universal Health Coverage (UHC) offers a the equity and effectiveness of fiscal policy. Expanding valuable opportunity to advance equity in healthcare access, but its success will hinge on more equitable Enhancing the quality of education financing and stronger support for underserved counties. and health services is therefore essential to improving the equity Fiscal policy alone is not enough. Kenya's constrained and effectiveness of fiscal policy fiscal space, marked by its fiscal deficit and increasing debt, necessitates a dual focus on both effective fiscal policy and robust, inclusive economic growth to achieve sustainable poverty and inequality reduction. While fiscal measures are crucial for redistribution, their impact is amplified by accelerating equitable growth, which is particularly vital for generating quality employment and raising incomes among lower-income households. This economic expansion would not only directly narrow income disparities but also enhance the efficacy and long- Photo: ©Festo Lang/World Bank term sustainability of fiscal policy interventions. May 2025 | Edition No. 31 37 REFERENCES Amjad, B., Cabrera, M., & Phadera, L. 2023. The Effects of Fiscal Policy on Inequality and Poverty in Iraq. CEQ Working Paper No. 133. Commitment to Equity Institute, Tulane University. Available at: https://commitmentoequity.org/wp-content/ uploads/2024/01/ceq133.pdf Bassier, I., Budlender, J., & Goldman, M. 2022. Social Distress and (Some) Relief: Estimating the Impact of Pandemic Job Loss on Poverty in South Africa. CEQ Working Paper No. 123. Commitment to Equity Institute, Tulane University. Available at: https://commitmentoequity.org/wp-content/uploads/2023/06/ceq123.pdf Benicio, H., Jellema, J. R., & Inchauste, G. 2021. Distributional Impacts of Taxes and Benefits in Post-Soviet Countries. World Bank. Available at: https://openknowledge.worldbank.org/server/api/core/bitstreams/edcfc416-0ea5-5117-a8f9- df330e85a0a9/content Bridi, V., Guedes, G., Pereira, C., & Waltenberg, F. 2023. Effects of Fiscal Interventions on Poverty and Inequality in Brazil: A National and Regional Analysis, 2017–2018. CEQ Working Paper No. 130. Commitment to Equity Institute, Tulane University. 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Available at: https://www.knbs. or.ke/reports/2024-25-kenya-census-of-agriculture-pilot-report/ Kenya National Bureau of Statistics. 2022. Kenya Continuous Household Survey (KCHS) 2022. Available at: https://statistics.knbs. or.ke/nada/index.php/catalog/131 Kenya National Bureau of Statistics. Kenya Economic Surveys 2023 and 2024. Available at: https://www.knbs.or.ke/economic- surveys/ Lopez Del Valle, J. C., Brest López, C., Campabadal, J., Ladronis, J., Lustig, N., Martínez Pabón, V., & Tommasi, M. 2021. Fiscal Policy, Income Redistribution, and Poverty Reduction in Argentina. CEQ Working Paper No. 111. Commitment to Equity Institute, Tulane University. Available at: https://repec.tulane.edu/RePEc/ceq/ceq111.pdf Lustig, N. 2022. Commitment to Equity Handbook: Estimating the Impact of Fiscal Policy on Inequality and Poverty (2nd ed., Vols. 1 & 2). Brookings Institution Press. Available at: https://commitmentoequity.org/wp-content/uploads/2023/04/CEQ- Handbook-Volume-2-.pdf Lustig, N. 2018. Commitment to Equity Handbook: Estimating the Impact of Fiscal Policy on Inequality and Poverty. Brookings Institution Press. Available at: https://commitmentoequity.org/wp-content/uploads/2022/02/1.-CEQ-Handbook-2018-Nora- Lustig-Editor.pdf Lustig, N., and S. Higgins. 2013. Commitment to Equity Assessment (CEQ): Estimating the Incidence of Social Spending, Subsidies and Taxes. Handbook. CEQ Working Paper 1 (Center for Inter-American Policy and Research, Department of Economics, Tulane University, and Inter-American Dialogue) (Commitment to Equity [CEQ] Tulane University), New Orleans, LA. Martínez-Aguilar, S., Fuchs, A., Ortiz-Juarez, E., & Del Carmen, G. 2017. The Impact of Fiscal Policy on Inequality and Poverty in Chile. CEQ Working Paper No. 46. Commitment to Equity Institute, Tulane University. Available at: http://www. commitmentoequity.org/wp-content/uploads/2017/08/CEQ_WP46_MartinezAguilar-et-al_ImpactFiscalPolicyChile_ June2017.pdf Ngugi, R; F. Tarp, and A. Abbi. 2025. Summary Policy Note on Tax Reforms in Kenya: Reforming Value Added Tax (VAT), Excise Taxes on Cigarettes and the Personal Income Tax (PIT), Working Papers, African Economic Research Consortium (AERC). Tekgüç, H., & Eryar, D. S. 2023. Redistribution Trends in Turkey: Regressive Taxes, Structural Change, and Demographics. CEQ Working Paper No. 134. Commitment to Equity Institute, Tulane University. Available at: https://commitmentoequity.org/wp- content/uploads/2024/01/ceq134.pdf World Bank. 2025. Africa's Pulse, No. 31 (April 2025): Improving Governance and Delivering for People in Africa. Washington, DC: World Bank. Available at: https://documents.worldbank.org/en/publication/documents-reports/ documentdetail/099707204242523579 World Bank. 2025. Global Economic Prospects, January 2025. Washington, DC: World Bank. Available at: https://www.worldbank.org/ en/publication/global-economic-prospects World Bank. 2024. Kenya Economic Update: Special Focus on Women's Economic Empowerment, KEU Edition 30. Washington, DC: World Bank. Available at: https://documents.worldbank.org/en/publication/documents-reports/ documentdetail/099120924042528216 World Bank. 2023a. World Bank. 2023. Kenya Poverty and Equity Assessment 2023 – From Poverty to Prosperity: Making Growth More Inclusive (English). Washington, D.C.: World Bank Group World Bank. 2023b. Kenya Economic Update: A Balancing Act – Opportunities for Making Growth More Inclusive During Challenging Times (English). Washington, D.C.: World Bank Group. Available at: http://documents.worldbank.org/curated/ en/099121323045531282 38 May 2025 | Edition No. 31 ANNEX TABLES Table A1: Selected economic indicators, 2021-2027 2021 2022 2023 2024 2025 2026 2027 Act. Act. Act. Act. Est. Proj. Proj. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 7.6 4.9 5.7 4.7 4.5 4.9 5.0 Agriculture -0.4 -1.5 6.5 4.7 4.1  4.5  4.8  Industry 7.5 3.9 2.0 0.8 2.9  3.6  3.9  Services 9.6 6.6 6.9 6.1 5.1 5.4  5.5  Private consumption 6.1 2.3 7.5 6.9 5.3  5.3  5.5  Government consumption 6.0 8.1 2.0 0.4 1.5  1.9  3.4  Gross fixed capital investment 10.8 -0.8 1.9 6.2 3.9  5.8  6.0  Exports, goods and services 16.6 20.8 11.7 7.5 6.2  8.4  8.6  Imports, good and services 23.1 10.9 1.3 2.7 4.7  5.8  7.2  GDP deflator 4.2 7.3 6.1 5.1 6.1 5.8 5.7 CPI (period average) 6.1 7.6  7.7  4.5  5.0  5.0  5.0  Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 6.2 7.5 19.9 7.6 Credit to non-government sector 8.5 12.5 13.9 -1.4 Policy rate (CBR) 7.0 8.8 12.5 11.3 NPLs (percent of total loans) 11.1 11.4 13.0 14.7 Central government (fiscal year i.e 2019 = 2019/20) (Percent of GDP, unless otherwise indicated) Total revenue & grants 17.5 16.7 16.9 17.8 17.8 18.0 18.1 Tax revenues 13.9 13.2 13.0 13.3 13.5 13.8 14.1 Non-tax revenues 3.4 3.3 3.7 4.2 4.1 3.9 3.8 Grants 0.2 0.2 0.1 0.3 0.2 0.3 0.3 Expenditure 23.8 22.6 22.4 22.8 22.1 21.5 21.3 Current 16.8 16.2 16.6 16.9 16.1 15.3 15.2 Capital 4.2 3.5 3.4 3.4 3.8 4.1 4.2 Primary balance -1.6 -0.8 0.0 0.8 1.5 1.8 1.8 Overall balance including grants -6.2 -5.6 -5.2 -4.9 -4.3 -3.5 -3.2 Financing 5.9 5.4 5.1 4.9 4.3 3.5 3.2 Net domestic borrowing 4.8 3.2 3.7 3.4 3.6 3.0 2.9 Foreign financing 1.1 2.2 1.4 1.5 0.8 0.5 0.3 Public debt stock (fiscal year i.e 2019 = 2019/20) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 67.8 72.0 65.7 65.5 63.6 61.1 58.5 External debt 33.8 38.2 32.1 31.1 28.9 26.7 24.4 Domestic debt 34.0 33.9 33.6 34.4 34.7 34.4 34.1 Memo: GDP at current market prices (KES billion) 12,028 13,490 15,034 16,224 18,614 20,667 22,947 Source: World Bank, National Treasury, Central Bank of Kenya, Kenya National Bureau of Statistics 40 May 2025 | Edition No. 31 Table A2: GDP growth rates for Kenya and EAC (2018-2024) 2018 2019 2020 2021 2022 2023 2024 Kenya 5.6 5.2 -0.3 7.6 4.9 5.7 4.7 Uganda 6.3 6.4 3.0 3.4 4.7 5.3 6.1 Tanzania 5.5 5.8 2.0 4.3 4.6 5.1 5.5 Rwanda 8.5 9.4 -3.4 10.6 8.2 8.2 8.9 Burundi 1.6 1.8 0.3 3.1 1.8 2.7 3.5 Congo (DR) 5.8 4.4 1.7 6.2 8.9 8.6 6.5 South Sudan -3.5 3.2 -6.5 -5.1 -2.3 -1.3 -7.2 Source: World Bank staff calculations Table A3: Kenya annual GDP (2010-2024) GDP, GDP, 2016 GDP/capita, GDP Years current prices constant prices current prices growth KSh Millions KSh Millions US$ Percent 2010 3,169,303 5,793,512 930 8.1 2011 3,725,913 6,091,207 1,010 5.1 2012 4,767,189 6,368,446 1,060 4.6 2013 5,311,321 6,595,678 1,130 3.6 2014 6,003,838 6,942,157 1,260 5.3 2015 6,884,318 7,287,022 1,330 5.0 2016 7,594,063 7,594,063 1,500 4.2 2017 8,483,398 7,883,815 1,550 3.8 2018 9,340,310 8,327,604 1,730 5.6 2019 10,237,725 8,756,947 1,890 5.2 2020 10,715,070 8,733,060 1,910 (0.3) 2021 12,027,662 9,395,942 2,070 7.6 2022 13,489,642 9,852,583 2,170 4.9 2023 15,033,610 10,416,150 2,110 5.7 2024 16,224,478 10,908,286 2,090 4.7 Source: Kenya National Bureau of Statistics and World Development Indicators May 2025 | Edition No. 31 41 42 Table A4: Contribution by sub-sectors (percentage points) Industry by sub sector contribution Services by subsector contribution Year Quarterly Agriculture Industries Accommo- Information Other Services Mining and Electricity and Transport and Financial and Manufacturing Construction dation and Real estate and communi- Education quarrying water supply storage insurance restaurant cation Q1 0.98 -0.01 0.24 0.08 0.32 0.6 0.37 0.16 0.68 0.24 0.52 0.39 1.30 3.67 May 2025 | Edition No. 31 Q2 0.69 0.07 0.38 0.04 0.38 0.9 0.49 0.12 0.87 0.18 0.67 0.51 1.34 4.18 2019 Q3 0.2 0.05 0.24 0.04 0.43 0.8 0.46 0.12 0.49 0.20 0.81 0.47 1.36 3.92 Q4 0.2 0.06 0.08 0.02 0.39 0.5 0.44 0.21 0.53 0.18 0.44 0.47 1.33 3.61 Q1 1.0 0.07 0.15 0.04 0.54 0.8 0.43 -0.13 0.19 0.24 0.47 0.25 0.79 2.24 Q2 1.7 0.04 -0.43 -0.11 0.36 -0.1 -0.30 -0.64 -1.73 0.14 0.26 0.26 -1.76 -3.77 2020 Q3 -0.8 0.05 -0.17 0.02 0.57 0.5 -0.43 -0.70 -1.10 0.14 0.25 0.48 -1.23 -2.58 Q4 1.5 0.06 0.36 0.12 0.70 1.2 0.16 -0.74 -0.66 0.18 0.84 0.60 -0.48 -0.10 Q1 -0.1 0.11 0.17 0.09 0.35 0.7 0.73 -0.28 -0.79 0.15 0.75 0.39 0.78 1.72 Q2 -0.4 0.11 0.92 0.18 0.41 1.6 0.80 0.31 1.63 0.34 1.04 0.52 3.19 7.83 2021 Q3 -0.1 0.16 0.91 0.19 0.43 1.7 0.56 0.59 1.43 0.05 0.91 0.34 2.99 6.88 Q4 0.4 0.35 0.56 0.10 0.41 1.4 0.59 0.68 0.66 0.23 1.08 0.23 2.35 5.83 Q1 -0.2 0.20 0.31 0.08 0.35 0.9 0.39 0.25 0.60 0.25 1.30 0.37 1.32 4.48 Q2 -0.4 0.17 0.30 0.14 0.25 0.9 0.29 0.27 0.61 0.30 1.24 0.27 1.08 4.05 2022 Q3 -0.2 0.17 0.16 0.17 0.22 0.7 0.27 0.15 0.55 0.34 0.76 0.26 1.11 3.44 Q4 -0.3 -0.12 0.13 0.15 0.14 0.3 0.23 0.25 0.45 0.24 0.83 0.34 1.16 3.49 Q1 1.2 -0.13 0.18 0.09 0.08 0.2 0.32 0.41 0.61 0.32 0.41 0.47 1.24 3.79 Q2 1.5 -0.09 0.16 0.07 0.08 0.2 0.22 0.39 0.36 0.26 0.99 0.25 1.22 3.68 2023 Q3 0.7 0.01 0.24 0.10 0.25 0.6 0.30 0.35 0.47 0.33 1.24 0.31 1.48 4.48 Q4 1.0 -0.08 0.15 0.05 0.28 0.4 0.26 0.25 0.68 0.42 1.05 0.18 1.43 4.26 Q1 1.1 -0.17 0.15 0.07 0.02 0.1 0.31 0.47 0.38 0.30 0.83 0.43 1.27 3.98 Q2 0.9 -0.06 0.26 0.03 -0.20 0.0 0.18 0.43 0.32 0.21 0.75 0.55 1.21 3.64 2024 Q3 0.6 -0.13 0.19 0.02 -0.16 -0.1 0.21 0.29 0.48 0.24 0.71 0.45 1.13 3.51 Q4 0.7 -0.02 0.32 0.07 0.16 0.5 0.53 0.16 0.53 0.20 0.62 0.54 0.98 3.56 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Other = Wholesale and retail trade + Public admistration + Proffessional, admistration and support services + Education + Health + Other services + FISIM Table A5: National fiscal position Actual (percent of GDP) 2019/20 2020/21 2021/22 2022/23 2023/24* Revenue and grants 17.2 16.1 17.5 16.7 16.9 Total revenue 16.9 15.9 17.3 16.5 16.8 Tax revenue 13.0 12.6 13.9 13.2 13.0 Income tax 6.7 6.1 6.9 6.6 6.5 VAT 3.6 3.6 4.1 3.8 4.0 Import duty 0.9 1.0 0.9 0.9 0.8 Excise duty 1.8 1.9 2.0 1.8 1.7 Other revenues 1.8 1.2 1.2 1.1 1.2 Railway levy Appropriation in aid 2.1 2.1 2.2 2.2 2.6 Grants 0.2 0.3 0.2 0.2 0.1 Expenditure and net lending 24.8 24.6 23.8 22.6 22.4 Recurrent 16.0 15.9 16.8 16.2 16.6 Wages and salaries 4.2 4.3 4.1 3.8 3.6 Interest payments 4.1 4.4 4.5 4.8 5.2 Other recurrent 7.6 7.3 8.1 7.5 7.8 Development and net lending 5.7 4.9 4.2 3.5 3.4 County allocation 3.1 3.5 2.8 2.9 2.4 Parliamentary service 0.3 0.3 0.3 0.3 0.2 Judicial service 0.1 0.1 0.1 0.1 0.1 Equalization of funds 0.0 0.0 0.0 0.0 0.0 Fiscal balance Deficit including grants (cash basis) -7.5 -8.2 -6.2 -5.6 -5.2 Financing 7.4 8.4 5.9 5.4 5.1 Foreign financing 3.2 2.8 1.1 2.2 1.4 Domestic financing 4.2 5.5 4.8 3.2 3.7 Total public debt (gross) 63.0 68.4 68.0 72.0 65.7 External debt 33.1 35.5 33.9 38.2 32.1 Domestic debt 29.9 32.8 34.1 33.9 33.6 Memo: GDP (Fiscal year current market prices, Ksh bn) 10,621 11,370 12,736 14,274 16,106 Source: National Treasury, Quarterly Economic and Budgetary Review (Q1, 2024/25) and Budget Outlook Paper Note: *Indicate Preliminary results May 2025 | Edition No. 31 43 Table A6: Balance of payment (US$ million) 2023 2024 Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   A. Current account balance  -877 -1,162 -970 -1,285 -859 -807 -1,452 -1,397 Trade balance  -2,126 -2,386 -2,147 -2,720 -2,094 -2,286 -2,591 -2,966 Exports  3,441 3,322 3,099 2,820 3,320 3,628 3,633 3,345 o/w Travel receipts  274 258 186 161 173 258 225 Imports  5,567 5,708 5,246 5,540 5,414 5,914 6,224 6,311 o/w Oil  1,150 1,207 1,110 1,302 1,147 1,202 1,158 1,138 Income  1,249 1,224 1,176 1,435 1,235 1,479 1,139 1,569 o/w Remittances  1,020 1,024 1,073 1,083 1,206 1,173 1,260 1,306 B. Capital account balance  55 36 24 13 57 62 10 48 C. Financial account balance  656 -2,401 64 -243 -784 -1,397 -1,260 -2,706 Direct investment, net  -63 -58 -55 -53 -183 -75 -77 -75 Portfolio investment, net  432 17 113 111 -824 60 -65 201 Financial derivatives, net  9 13 31 31 16 14 -18 6 Other investment, net  278 -2,372 -24 -332 206 -1,397 -1,101 -2,837 D. Net errors and omissions  470 -180 100 845 -195 -2 321 -474 E. Overall balance  1,008 -1,094 911 184 213 -650 -140 -882 F. Reserves and related items  -1,008 1,094 -911 -184 -213 650 140 882 Change in reserve assets  -1,008 1,075 -501 -194 471 650 140 1,488 IMF net inflows 0 19 -410 10 -684 0 0 -606 Memorandum items Gross reserves   10,901 13,166 13,852 14,156 15,967 16,438 16,391 16,349 Imports cover 3.9  4.3 4.0  3.9 4.1 4.4 4.4 5.1 Quarterly GDP at current prices   29,752 28,022 25,485 25,258 27,028 31,399 30,701 33,584 Source: Central Bank of Kenya 44 May 2025 | Edition No. 31 Table A7: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 5.4 8.9 6.0 1.9 February 5.1 8.7 4.7 2.0 March 5.6 9.9 4.3 2.2 April 6.5 12.2 6.2 2.4 May 7.1 12.4 6.2 2.6 June 7.9 13.8 7.0 3.0 2022 July 8.3 15.3 6.3 3.1 August 8.5 15.3 6.6 3.4 September 9.2 15.5 8.8 3.6 October 9.6 15.8 9.4 4.0 November 9.5 15.4 8.9 4.3 December 9.1 13.8 9.6 4.3 January 9.0 12.8 10.2 4.7 February 9.2 13.3 10.3 4.8 March 9.2 13.4 10.1 4.7 April 7.9 10.1 9.7 4.8 May 8.0 10.2 9.9 4.3 June 7.9 10.3 9.4 4.1 2023 July 7.3 8.6 10.4 3.8 August 6.7 7.5 10.3 3.7 September 6.8 7.9 9.7 3.7 October 6.9 7.8 10.7 3.8 November 6.8 7.6 11.1 3.7 December 6.6 7.7 10.2 3.4 January 6.9 7.9 10.0 3.6 February 6.3 6.9 9.6 3.6 March 5.7 5.8 12.1 3.6 April 5.0 5.6 6.5 3.5 May 5.1 6.2 6.3 3.7 June 4.6 5.6 5.4 3.7 2024 July 4.3 5.6 4.0 3.6 August 4.4 5.3 4.8 3.7 September 3.6 5.1 1.6 3.6 October 2.7 4.3 -0.9 3.6 November 2.8 4.5 -0.5 3.6 December 3.0 4.8 -0.1 3.6 January 3.3 6.1 -0.5 3.3 February 3.5 6.4 -0.1 3.3 2025 March 3.6 6.6 0.4 3.2 April 4.1 7.1 1.6 3.2 Source: World Bank, based on data from Kenya National Bureau of Statistics Energy inflation is an average of housing, water, electricity, gas and other fuels and transport inflation May 2025 | Edition No. 31 45 46 Table A8: Credit to private sector growth (%) Total Private Building and Transport and Finance and Mining and Private house- Consumer Business Other Year Month sector annual Agriculture Manufacturing Trade Real estate construction communication insurance quarrying holds durables services activities growth rates January 8.8 1.3 9.7 9.6 2.9 20.7 3.5 0.5 24.9 4.3 14.6 8.4 46.8 February 9.1 3.0 7.6 8.9 7.9 24.1 3.6 0.7 -10.7 5.0 14.0 11.6 49.7 March 10.9 7.7 9.9 10.4 6.4 25.0 3.6 0.5 -4.9 7.5 15.6 14.7 60.5 April 11.5 6.4 12.0 10.7 8.2 28.9 5.8 0.8 28.3 6.7 16.1 12.2 53.6 May 2025 | Edition No. 31 May 11.9 11.6 15.5 9.1 9.0 26.5 5.3 0.8 47.9 7.5 15.1 11.3 57.5 June 12.3 12.5 15.2 11.6 13.9 22.2 6.5 0.5 28.5 6.1 14.7 15.2 57.2 2022 July 14.2 10.8 16.1 15.2 14.1 27.0 2.8 1.7 78.6 7.6 14.8 16.9 69.8 August 12.5 19.2 15.2 13.3 11.5 13.5 1.2 1.0 97.2 7.8 14.3 16.1 60.8 September 12.9 17.0 14.2 16.4 12.5 21.6 0.2 0.1 57.4 7.8 14.4 12.5 53.8 October 13.3 21.7 17.5 15.3 8.0 22.8 5.4 1.6 53.5 5.9 14.0 13.2 49.8 November 12.5 20.3 14.9 14.3 6.0 21.8 4.4 2.8 58.3 6.0 12.6 14.5 44.8 December 12.5 22.3 13.8 11.4 8.2 23.5 7.6 3.2 31.3 8.2 12.9 13.7 41.8 January 11.5 20.7 13.8 11.1 5.8 16.6 6.7 3.3 54.2 7.8 12.5 13.7 33.3 February 11.7 18.0 15.2 11.8 3.0 16.5 21.1 2.9 97.7 7.8 12.4 13.5 15.3 March 11.6 14.9 15.8 11.9 5.8 17.4 28.4 2.3 83.2 7.2 12.7 9.3 11.9 April 13.2 16.9 21.7 13.7 4.2 18.0 32.3 2.4 55.6 5.0 13.3 12.5 20.6 May 13.2 18.3 19.3 15.4 5.1 22.0 32.7 1.9 41.3 7.0 11.9 13.5 6.8 June 12.2 18.6 18.0 10.2 4.9 19.8 29.7 3.7 24.0 8.4 12.0 12.1 8.7 2023 July 10.3 19.0 14.7 7.4 1.9 16.4 35.4 3.0 16.7 7.0 12.9 10.7 0.5 August 12.6 14.9 19.6 9.4 2.7 24.9 38.7 3.7 23.7 7.8 12.7 8.1 10.8 September 12.2 15.3 22.0 7.1 7.9 18.5 40.8 7.6 20.7 7.0 10.5 11.7 -0.8 October 12.5 18.5 18.4 9.9 13.0 16.2 41.6 6.5 5.9 8.3 10.8 8.3 7.1 November 13.2 23.7 20.0 10.2 3.6 22.9 38.9 6.5 11.8 7.8 11.1 7.2 12.8 December 13.9 23.4 20.9 13.1 8.6 20.8 60.2 7.1 15.1 2.5 9.9 7.7 16.4 January 13.8 32.5 23.1 12.9 3.1 16.6 32.8 8.0 8.0 7.3 9.3 9.5 15.8 February 10.3 28.2 13.6 10.7 4.1 7.5 16.9 6.1 4.3 8.9 7.4 3.3 29.6 March 8.0 17.5 9.4 6.2 0.1 6.9 13.0 5.2 34.4 8.6 6.4 6.8 15.2 April 6.6 15.7 4.3 5.1 5.0 9.6 6.2 5.4 26.9 10.4 5.2 -0.4 10.4 May 4.5 9.9 1.6 2.7 -4.1 4.4 -0.1 7.3 47.2 7.6 5.7 0.9 7.3 June 4.0 10.1 -0.6 3.1 -8.3 4.4 3.3 3.6 111.7 7.5 3.9 1.9 8.8 2024 July 3.7 11.3 0.4 0.6 -7.9 7.3 1.0 3.6 106.8 7.6 2.7 2.1 5.6 August 1.3 7.2 -6.7 0.8 -13.0 -1.1 4.4 3.8 102.3 5.9 3.9 1.4 -2.8 September 0.4 7.2 -14.3 6.5 -13.5 1.4 0.3 2.4 96.7 7.0 2.7 -2.8 -7.4 October 0.0 8.9 -11.6 4.7 -16.7 8.0 -5.2 2.8 26.3 5.9 3.3 -3.8 -16.1 November -1.1 4.2 -10.5 2.2 -2.2 1.2 -9.1 2.2 6.4 4.7 2.2 -1.6 -18.6 December -1.4 5.1 -9.4 2.3 -6.1 1.6 -21.2 1.3 -22.9 9.2 3.3 -4.5 -18.2 Source: Central Bank of Kenya and Kenya National Bureau of Statistics. Table A9: Mobile payments Number of Number of Value of Year Month Number of agents customers transactions transactions (Millions) (Millions) (Billions) January 299,860 68.3 181.9 585.8 February 301,108 67.9 171.4 568.7 March 302,837 68.6 195.8 664.3 April 295,237 68.7 188.2 663.5 May 305,830 70.0 193.0 692.6 June 304,693 70.3 186.2 665.1 2022 July 309,856 71.6 194.8 722.5 August 310,450 70.1 184.8 677.4 September 308,799 71.7 189.7 674.5 October 311,957 73.2 196.9 646.5 November 315,240 73.2 190.5 639.8 December 317,983 73.1 207.0 708.1 January 319,079 74.4 198.3 589.3 February 323,613 74.0 184.8 578.1 March 321,149 73.7 204.8 645.8 April 329,968 76.0 195.0 615.3 May 334,726 77.3 205.9 670.4 June 328,543 77.0 197.4 643.8 2023 July 330,912 77.2 202.9 684.6 August 333,428 77.6 208.6 666.6 September 336,033 77.1 201.6 660.8 October 333,291 76.0 210.6 703.3 November 327,928 77.1 201.3 707.6 December 322,404 77.3 213.3 788.4 January 321,340 76.8 211.6 784.0 February 320,182 77.3 213.3 790.8 March 320,276 77.7 207.8 747.7 April 331,614 77.4 203.6 711.7 May 334,088 77.2 208.1 722.3 June 334,046 77.9 201.1 676.0 2024 July 340,889 78.6 204.2 705.9 August 348,065 78.6 214.3 705.9 September 367,551 79.4 196.5 670.5 October 358,621 80.8 215.3 722.3 November 383,624 81.6 297.0 707.3 December 381,116 82.4 309.3 753.5 January 382,873 83.4 294.6 697.5 2025 February 394,853 84.6 267.9 636.2 Source: Central Bank of Kenya May 2025 | Edition No. 31 47 Table A10: Exchange rate Year Month USD UK Pound Euro January 113.4 153.6 128.4 February 113.7 153.7 128.8 March 114.3 151.0 126.2 April 115.4 150.1 125.5 May 116.3 145.1 123.0 June 117.3 144.8 124.1 2022 July 118.3 141.8 120.7 August 119.4 143.5 121.0 September 120.4 136.7 119.3 October 121.0 136.6 119.0 November 121.9 143.0 124.2 December 122.9 149.8 130.8 January 123.9 151.3 133.4 February 125.4 151.9 134.5 March 129.7 157.4 138.8 April 134.4 167.3 147.4 May 137.3 171.3 149.2 June 139.7 176.3 151.4 2023 July 141.4 182.1 156.3 August 143.9 182.9 157.1 September 146.8 182.3 156.9 October 149.4 181.9 157.8 November 152.0 188.6 164.2 December 154.1 195.0 168.0 January 159.7 202.9 174.3 February 151.8 191.7 163.8 March 137.4 174.6 149.3 April 131.5 164.7 141.1 May 131.7 166.5 142.4 June 129.4 164.5 139.4 2024 July 129.9 166.9 140.8 August 129.3 167.3 142.4 September 129.2 170.7 143.5 October 129.2 168.8 140.9 November 129.4 165.1 137.5 December 129.4 163.6 134.8 January 129.4 159.8 134.0 February 129.3 162.0 134.6 2025 March 129.3 166.8 139.6 April 129.6 169.6 144.8 Source: Central Bank of Kenya 48 May 2025 | Edition No. 31 Table A11: Nairobi securities exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 share index January 1,889 February 1,887 March 1,847 April 1,801 May 1,682 June 1,613 2022 July 1,701 August 1,751 September 1,718 October 1,678 November 1,638 December 1,676 January 1,657 February 1,647 March 1,622 April 1,579 May 1,546 June 1,575 2023 July 1,577 August 1,540 September 1,508 October 1,461 November 1,496 December 1,501 January 1,509 February 1,536 March 1,752 April 1,667 May 1,722 June 1,657 2024 July 1,670 August 1,678 September 1,776 October 1,906 November 1,861 December 2,011 January 2,163 2025 February 2,300 Source: Central Bank of Kenya May 2025 | Edition No. 31 49 Table A12: Central bank rate and Treasury bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 7.00 7.32 8.08 9.49 February 7.00 7.28 8.09 9.69 March 7.00 7.25 8.08 9.77 April 7.00 7.39 8.27 9.75 May 7.50 7.65 8.69 9.87 June 7.50 7.90 9.07 9.96 2022 July 7.50 8.21 9.29 9.98 August 7.50 8.58 9.45 9.92 September 8.25 8.92 9.60 9.90 October 8.25 9.06 9.65 9.92 November 8.75 9.19 9.71 10.17 December 8.75 9.37 9.80 10.27 January 8.75 9.44 9.88 10.42 February 8.75 9.62 10.06 10.62 March 9.50 9.76 10.25 10.75 April 9.50 10.04 10.55 10.86 May 9.50 10.47 10.83 11.28 June 10.50 11.49 11.54 11.69 2023 July 10.50 12.12 12.23 12.46 August 10.50 13.94 13.19 13.55 September 10.50 14.60 14.42 14.64 October 10.50 14.96 15.03 15.26 November 10.50 15.32 15.39 15.57 December 12.50 15.71 15.57 15.81 January 12.50 16.14 16.14 16.32 February 13.00 16.51 16.65 16.84 March 13.00 16.68 16.86 16.98 April 13.00 16.16 16.71 16.70 May 13.00 15.91 16.52 16.54 June 13.00 15.97 16.67 16.74 2024 July 13.00 15.99 16.82 16.86 August 12.75 15.88 16.80 16.90 September 12.75 15.75 16.60 16.80 October 12.00 14.60 15.30 15.60 November 12.00 13.06 13.41 14.15 December 11.25 10.32 10.39 11.83 January 11.25 9.63 10.02 11.33 February 10.75 9.14 9.57 10.80 2025 March 10.75 8.88 9.13 10.47 April 10.00 8.51 9.15 10.21 Source: Central Bank of Kenya 50 May 2025 | Edition No. 31 Table A13: Interest rates Short-term Long-term Year Month Overall 91-Treasury Central Average Interest Interbank Savings weighted Bill Bank Rate deposit rate Rate Spread lending rate January 4.3 7.3 7.0 6.5 2.5 12.1 5.6 February 4.7 7.3 7.0 6.6 2.6 12.2 5.6 March 4.8 7.3 7.0 6.5 2.5 12.2 5.7 April 4.7 7.4 7.0 6.6 2.6 12.2 5.6 May 4.6 7.7 7.5 6.6 2.5 12.2 5.6 June 5.0 7.9 7.5 6.6 2.5 12.3 5.7 2022 July 5.5 8.2 7.5 6.7 2.9 12.3 5.6 August 5.4 8.6 7.5 6.9 3.5 12.4 5.5 September 4.4 8.9 8.3 6.8 3.4 12.4 5.6 October 5.1 9.1 8.3 7.0 3.5 12.4 5.4 November 4.5 9.2 8.8 7.1 3.5 12.6 5.5 December 5.3 9.4 8.8 7.2 3.6 12.7 5.5 January 5.9 9.4 8.8 7.5 3.6 12.8 5.3 February 6.4 9.6 8.8 7.5 3.6 13.1 5.5 March 7.1 9.8 9.5 7.6 3.5 13.1 5.5 April 8.5 10.0 9.5 7.7 3.6 13.1 5.4 May 9.4 10.5 9.5 7.7 3.5 13.2 5.5 June 9.5 11.5 10.5 7.8 3.9 13.3 5.5 2023 July 10.0 12.1 10.5 8.1 4.0 13.5 5.4 August 12.5 13.9 10.5 8.4 4.1 13.8 5.4 September 12.3 14.6 10.5 8.6 4.0 14.0 5.3 October 12.3 15.0 10.5 9.1 4.0 14.2 5.0 November 11.3 15.3 10.5 9.5 4.0 14.4 4.9 December 11.5 15.7 12.5 10.1 4.2 14.6 4.5 January 13.6 16.1 12.5 10.2 3.7 15.2 5.0 February 13.6 16.5 13.0 10.3 3.3 15.9 5.6 March 13.5 16.7 13.0 10.5 3.9 16.3 5.8 April 13.7 16.2 13.0 10.8 4.1 16.4 5.7 May 13.6 15.9 13.0 11.1 4.4 16.6 5.5 June 13.1 16.0 13.0 11.5 5.1 16.9 5.4 2024 July 13.2 16.0 13.0 11.3 4.6 16.8 5.6 August 13.0 15.9 12.8 11.1 4.6 16.8 5.7 September 12.7 15.8 12.8 11.2 3.6 16.9 5.7 October 12.1 14.6 12.0 11.0 4.5 17.2 6.1 November 12.0 13.1 12.0 10.4 3.5 17.2 6.8 December 11.5 10.3 11.3 10.5 4.3 16.9 6.4 January 11.2 9.6 11.3 10.1 4.1 16.6 6.6 2025 February 10.7 9.1 10.8 9.8 4.0 16.4 6.7 Source: Central Bank of Kenya May 2025 | Edition No. 31 51 Table A14: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 January 4.5 4.6 4.7 February 5.6 4.7 4.4 March 4.6 4.9 4.7 April 8.6 6.3 6.9 May 7.8 5.8 6.8 June 7.2 5.2 7.4 2022 July 12.4 5.0 7.6 August 4.9 2.6 5.1 September 8.2 4.3 6.1 October 4.7 2.7 5.2 November 4.4 3.0 5.3 December 6.4 5.3 7.1 January 8.6 6.9 9.2 February 4.9 5.5 8.8 March 5.0 5.9 10.6 April 3.1 4.7 9.4 May 2.4 5.3 10.4 June 10.0 8.5 13.4 2023 July 5.8 8.4 14.3 August 10.1 9.8 17.5 September 5.3 9.7 19.5 October 5.4 10.1 20.4 November 5.8 10.4 21.1 December 3.7 9.3 21.2 January 5.1 9.1 21.6 February 9.3 9.0 18.3 March 5.7 7.8 11.5 April 2.0 6.3 11.1 May 3.2 7.1 10.3 June -1.6 4.9 6.8 2024 July -5.6 3.8 5.7 August -8.9 4.7 3.3 September -2.3 4.7 2.6 October -0.9 5.6 1.8 November 2.2 7.7 2.6 December 3.7 7.8 1.0 January 3.4 7.5 -0.2 2025 February 1.6 9.1 2.5 Source: Central Bank of Kenya and World Bank 52 May 2025 | Edition No. 31 Table A15: Coffee production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 5,990 762 3,239 2,634 February 6,271 730 4,618 3,546 March 6,646 571 4,067 3,416 April 1,846 519 5,749 4,468 May 491 424 5,903 4,877 June 304 627 4,945 3,818 2022 July 2,111 664 5,179 3,824 August 4,380 637 3,213 2,482 September 3,409 589 3,172 2,365 October 3,015 494 3,224 2,412 November 1,775 433 3,654 2,388 December 1,613 463 2,224 1,416 January 4,440 603 1,921 1,217 February 5,598 680 3,878 2,569 March 5,073 622 5,486 3,851 April 4,407 566 5,428 3,896 May 1,374 604 6,359 4,745 June ** ** 7,078 5,001 2023 July ** ** 6,175 4,192 August 154 656 4,652 3,264 September 340 685 2,967 2,024 October 1,419 595 1,705 1,269 November 1,677 560 1,695 1,358 December 3,039 589 1,478 1,226 January 4,553 684 2,686 2,112 February 4,824 775 2,745 2,134 March 5,070 665 4,291 3,350 April 6,879 654 5,371 3,927 May 3,462 523 4,733 3,614 June 4,524 561 5,800 4,124 2024 July 940 520 6,991 4,936 August 3,034 620 5,729 3,710 September 2,649 634 5,014 3,378 October 3,083 656 3,392 2,346 November 2,540 754 4,122 2,890 December 3,315 859 2,647 1,901 January 3,864 3,314 2025 February 6,094 5,455 Source: Kenya National Bureau of Statistics May 2025 | Edition No. 31 53 Table A16: Tea production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 48,683 294 45,585 12,629 February 40,826 311 44,093 13,303 March 46,321 301 46,044 13,559 April 41,171 304 43,446 12,769 May 50,093 280 47,380 13,777 June 43,268 286 46,795 13,693 2022 July 33,854 280 45,584 13,465 August 35,895 286 42,940 12,604 September 38,196 284 48,312 14,168 October 50,466 298 41,077 12,253 November 49,220 304 51,641 16,035 December 55,323 294 47,848 14,892 January 54,919 289 44,556 13,520 February 32,730 291 44,329 13,511 March 30,489 311 50,831 16,191 April 49,491 321 37,025 12,180 May 57,886 300 48,229 16,176 June 48,128 292 45,318 15,446 2023 July 44,697 291 39,944 12,910 August 45,578 324 58,591 20,193 September 48,497 329 47,807 16,980 October 52,793 323 45,360 16,112 November 50,906 330 49,507 17,768 December 54,336 337 46,525 17,284 January 58,967 349 51,188 18,268 February 55,447 339 59,044 20,430 March 54,347 295 59,599 19,070 April 53,853 301 56,263 17,337 May 54,529 287 51,575 15,610 June 46,242 277 42,895 11,752 2024 July 40,826 287 54,306 15,519 August 38,629 292 50,821 14,713 September 42,413 291 51,936 14,396 October 50,061 267 44,652 12,515 November 47,413 287 53,544 15,546 December 55,832 283 49,731 13,808 January 54,365 292 53,309 15,503 2025 February 296 53,216 15,636 Source: Kenya National Bureau of Statistics 54 May 2025 | Edition No. 31 Table A17: Local electricity generation by source Geo- Co- Year Month Hydro Thermal Wind Solar Total thermal generation January 320 311 206 156 32 - 1026 February 244 305 224 123 30 0.05 926 March 243 410 170 202 35 0.01 1061 April 229 441 126 179 31 0.04 1006 May 284 521 80 153 33 0.03 1071 June 265 494 83 181 28 0.02 1051 2022 July 252 521 104 208 25 0.02 1111 August 257 513 121 186 22 0.02 1099 September 244 488 118 201 26 0.01 1077 October 247 478 97 237 39 - 1098 November 233 494 124 177 39 0.04 1067 December 221 541 133 139 42 0.02 1076 January 185 525 107 203 47 0.02 1067 February 113 472 142 191 43 - 961 March 126 509 167 152 41 - 995 April 191 476 120 157 39 - 983 May 238 511 95 182 44 - 1070 June 258 505 68 168 37 - 1035 2023 July 279 495 108 198 38 0.04 1119 August 259 523 90 187 41 0.02 1099 September 247 512 130 141 39 0.03 1070 October 205 510 141 183 43 0.01 1082 November 288 495 68 160 36 - 1046 December 274 498 70 86 44 - 971 January 255 507 91 136 38 - 1026 February 262 447 75 156 40 - 979 March 291 443 79 199 40 - 1052 April 362 422 93 83 37 0.01 998 May 349 441 99 95 39 - 1024 June 325 417 84 156 38 - 1020 2024 July 358 472 103 135 31 - 1099 August 321 483 99 158 34 0 1096 September 271 455 92 191 36 0 1046 October 277 493 111 182 41 0 1103 November 274 495 100 158 40 1067 December 286 476 103 148 45 1059 January 283 483 115 159 45 1085 2025 February 240 415 113 194 44 1007 Source: Kenya National Bureau of Statistics May 2025 | Edition No. 31 55 Table A18: Soft drinks, sugar, galvanized sheets and cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 46,537 64,839 21,546 855,883 February 44,407 64,191 21,671 818,496 March 61,898 79,438 19,616 911,250 April 45,868 68,483 19,479 842,239 May 44,289 63,209 23,383 752,698 June 45,640 70,376 22,073 773,153 2022 July 35,855 70,278 20,895 804,401 August 38,842 46,460 17,064 745,559 September 50,841 61,477 21,833 829,930 October 50,393 76,533 19,951 824,474 November 52,363 67,990 20,589 821,768 December 62,536 63,279 17,686 774,124 January 52,601 81,648 17,350 785,773 February 47,725 67,486 22,457 724,164 March 56,068 49,761 22,373 820,772 April 40,193 31,971 21,404 745,106 May 36,189 31,495 23,555 786,702 June 41,736 34,072 21,100 794,700 2023 July 33,155 33,246 24,337 844,237 August 38,047 27,680 23,943 872,135 September 58,002 16,760 23,443 834,651 October 48,795 24,597 24,178 836,384 November 51,948 25,179 23,847 756,055 December 68,483 48,877 24,555 715,003 January 46,839 60,680 21,544 672,899 February 43,175 63,075 23,112 713,472 March 55,354 69,657 23,801 708,989 April 53,579 59,263 25,185 688,163 May 59,820 56,271 21,653 660,026 June 40,152 75,500 22,527 692,240 2024 July 40,728 83,849 21,939 733,331 August 64,534 73,386 24,975 790,613 September 59,535 73,818 21,805 778,999 October 65,333 72,908 24,905 817,386 November 60,512 69,895 24,134 803,632 December 78,056 57,152 24,479 792,813 January 58,863 73,201 22,586 796,304 2025 February 46,317 76,663 25,839 759,332 Source: Kenya National Bureau of Statistics 56 May 2025 | Edition No. 31 Table A19: Tourism arrivals Year Month JKIA MIA TOTAL January 63,277 6,655 69,932 February 67,560 6,390 73,950 March 76,336 5,073 81,409 April 77,379 3,949 81,328 May 87,058 3,429 90,487 June 103,332 4,834 108,166 2022 July 118,347 6,580 124,927 August 103,163 7,892 111,055 September 100,682 6,240 106,922 October 105,318 8,663 113,981 November 96,533 11,321 107,854 December 113,630 15,086 128,716 January 112,927 15,845 128,772 February 107,998 15,062 123,060 March 104,799 13,939 118,738 April 92,492 7,571 100,063 May 101,105 5,760 106,865 June 133,509 8,081 141,590 2023 July 155,758 12,607 168,365 August 155,359 16,701 172,060 September 133,400 12,277 145,677 October 128,399 13,843 142,242 November 118,424 15,182 133,606 December 134,226 20,057 154,283 January 125,791 24,941 150,732 February 132,039 23,600 155,639 March 120,261 18,012 138,273 April 108,592 6,720 115,312 May 121,650 5,978 127,628 June 149,643 9,685 159,328 2024 July 164,672 16,346 181,018 August 169,315 20,278 189,593 September 139,812 15,747 155,559 October 135,581 17,844 153,425 November 119,679 19,776 139,455 December 140,802 25,964 166,766 January 135,508 28,093 163,601 2025 February 130,316 25,075 155,391 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) May 2025 | Edition No. 31 57