Kenya should move beyond headline GDP growth and macroeconomic stability and refocus fiscal policy on outcomes that improve citizens’ lives, cushion households from shocks and protect hard-won social gains, the Institute of Public Finance (IPF) says.
- •While Kenya’s economy is projected to grow at about 5% in the medium term, signalling relative macroeconomic stability after years of shocks, this growth is failing to translate into better living standards for most citizens.
- •For many Kenyans, stability has meant higher costs of living, shrinking real incomes, limited job opportunities and declining access to essential public services, according to the latest Macro-Fiscal Analytic Snapshot 2026 by the IPF.
- •Total real wage earnings per employee fell by 4%, from KSh 696,817 in 2022 to KSh 665,418 in 2024, sharply eroding purchasing power, despite official inflation easing from 7.7% to 4.5% over the same period.
Job creation remains weak. Economic growth is concentrated in services and agriculture, sectors dominated by informality, low wages and limited job security. Manufacturing, which traditionally supports stable employment, continues to decline.
IPF warns that Kenya’s stabilising growth path faces fresh risks as the country heads toward the 2027 elections, historically associated with heightened uncertainty, delayed investments and slower economic momentum.
“The issue of tight fiscal space is not in question,” said Daniel Ndirangu, Chief Executive Officer of the Institute of Public Finance. “What is missing is the right conversation on actionable reforms. Every shilling must be optimally used in critical sectors such as health, education, food security, water, nutrition, social protection and gender equality.”
The report flags persistent revenue underperformance, pointing to weak forecasting and politically driven targets that undermine budget credibility. IPF calls for realistic revenue projections grounded in economic reality, tighter controls on supplementary budgets and stronger parliamentary oversight to curb wastage.
“Compared to regional peers, Kenya exhibits repeated optimism in fiscal consolidation,” Ndirangu said. “Frequent revisions raise serious credibility and implementation risks in the medium-term fiscal strategy.”
The Health Risks
At the same time, Kenya’s health sector is entering a high-risk phase as foreign aid for health declines faster than domestic financing can compensate. IPF notes that donor-funded health development spending has fallen sharply over the past four years, reversing gains made during the Covid-19 period.
Total health spending has declined both as a share of GDP and on a per capita basis, even as demand for services continues to rise. Domestic allocations have increased only marginally, failing to offset the withdrawal of external financing, especially for development programmes.
The situation is worsened by weak tracking of off-budget donor funds, obscuring the true scale of Kenya’s exposure. The scaling back of major partners, including programmes previously supported by USAID, has left counties vulnerable to sudden funding gaps.
Counties are absorbing much of the shock, with health budgets increasingly skewed towards recurrent costs such as salaries, crowding out spending on medicines, equipment and infrastructure. Poor execution of development budgets limits the system’s ability to adjust to declining aid.
The retreat of foreign aid comes as Kenya implements major Social Health Insurance reforms. IPF cautions that without a credible plan to replace donor funding and improve efficiency, the reforms risk widening service gaps and pushing households toward higher out-of-pocket costs.
