Kenya’s economy is projected to grow by 5.7% in 2023 from a slowed growth of 4.8% in 2022, based on envisaged growth of the mainstay agricultural sector due to the projected rainfall patterns.
According to Kenya Economic Report 2023 published by the Kenya Institute for Public Policy Research and Analysis (KIPPRA), Kenya’s economy is expected to stabilize and grow at 6.5 per cent by 2025, supported by implementation of the Government’s priority projects.
Inflation rate is expected to remain within the government’s policy target range of 5 per cent plus/minus 2.5 per cent in the medium-term, with a projected rate of 6.3 per cent in 2023.
The elevated inflation is attributed to the rise in commodity prices, especially food and domestic fuel. Nevertheless, as the government puts in place measures to stabilize prices, such as tightening of the monetary policy and introduction of fertilizer subsidies to boost agricultural production, inflation is expected to ease in the medium-term to an average of 5.1 per cent in 2025.
The current account balance is envisaged to remain stable in the medium-term, supported by increased exports and inflow of diaspora remittances.
In 2023, the current account balance is expected to remain at the 5.1 per cent attained in 2022. This is premised on the government initiatives to boost Kenyan exports through revamping under-performing export crops, boosting tea and coffee value chains and expanding the market for Kenyan goods and services.
Notably, the KIPPRA report notes that proposed measures by the Government to enhance agricultural productivity are expected to reduce food imports and increase exports, improving the current account balance further.
On the downside risks, uncertainty emanating from the Russia-Ukraine war that affected global and regional economic activity due to disruptions of the supply chains continue to affect economic performance.
Though the baseline projections considered the downside effects of the war through increased commodity prices, a prolonged war and associated sanctions could raise commodity prices further. Disruption of the global supplies may lead to higher food prices and farm input prices such as fertilizer and fuel prolonging the elevated food prices in the country.
On average, Russia supplied 18.9% of Kenya’s fertilizer between 2016 and 2020, being the second largest after Saudi Arabia (36.5%). Prolonged war could result in higher domestic inflationary pressures, generation of more fiscal costs such as fertilizer subsidies, and the need for increased social protection costs.
Depreciation of the Kenya Shilling against the US Dollar may further exacerbate high inflation, increase borrowing costs and debt servicing. The weakening of the Kenya Shilling against the US Dollar increases the importation cost for the country, especially fuel and food imports.
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