NAIROBI, June 7, 2023 — With GDP growth of 4.8% in 2022, economic performance weakened after the strong rebound from the COVID-19 crisis to 7.5% in 2021. The growth rate, however, remained in line with the trajectory Kenya’s long-term growth rate, although the economy has faced difficult global financial conditions, fuel and food price shocks, as well as a historic drought which has affected the economy, particularly in the second half of 2022.
The growth momentum was driven by the services sector, which contributed about 80 percent of the increase in total GDP. The financial services, tourism and transportation sectors performed particularly well. According to Latest Kenya Economic Update (KEU)Kenya’s GDP growth has outpaced that of sub-Saharan Africa, which is estimated to grow by 3.6% in 2022.
The strong growth in overall GDP amid the poly-crisis highlights the resilience of the Kenyan economy. Like many countries across the world, Kenya has been facing inflationary pressures amid volatile commodity prices, tightening global financing conditions which have put major pressure on the exchange rate and reserves. exchange rate, further aggravated by the worst drought in four decades, significantly increasing food insecurity and affecting millions of people. means of subsistence. Macroeconomic policy aimed to strike a balance in a complex economic environment by combining greater exchange rate flexibility, fiscal consolidation and tighter monetary policy. Fiscal consolidation, which Kenya embarked on in recent years to address growing debt sustainability challenges and which was interrupted by the pandemic, continued in 2022, helping to reduce external imbalances and interiors.
“Fiscal consolidation plays a central role in supporting Kenya’s macroeconomic foundations for inclusive and sustainable growth.,” said Keith Hansen, Country Director of the World Bank.
Kenya’s medium-term growth prospects remain strong as the economy continues to recover from multiple crises. Medium-term GDP growth is expected to remain around 5%, which is broadly in line with the pre-pandemic trend and Kenya’s estimated potential GDP growth rate. Real per capita incomes are expected to grow by around 3% in the medium term, and poverty is expected to return to its pre-pandemic downward trend.
“Strong GDP growth over the medium term is expected to benefit from reduced government crowding out due to fiscal consolidation and will be driven by robust private investment. »help Naomi Mathenge, World Bank Senior Economist in Kenya.
However, the outlook is subject to high risks. External risks include weaker-than-expected growth in Europe, high global commodity prices that may increase Kenya’s import bill and increase the cost of reducing inflation, and further tightening of financial conditions in advanced economies. Domestic risks mainly relate to spending pressures to reduce the high cost of living and slowing fiscal efforts.
Even though climate change is recognized as a major threat to Kenya’s growth profile, global efforts to combat climate change, including reducing greenhouse gas emissions, also provide positive opportunities for the Kenyan economy. The Special Focus section of this KEU examines the opportunities for Kenya in a decarbonized world. If Kenya maintains a low-carbon development trajectory throughout its growth, it could seize opportunities created by the global trend toward decarbonization of economies. Maintaining a low-carbon trajectory does not have to come at the expense of Kenya’s efforts to accelerate growth if the trajectory is aligned with increasing productivity and supporting inclusive development.
