President William Ruto inherited a litany of problems as he took the helm, ranging from burgeoning public debt to a volatile forex market and a surge in food and fuel prices.
The economic woes triggered fears of Kenya defaulting on its debt obligations amid a cash squeeze that saw the government delay payment of civil service salaries.
But fast forward to 2024 and green shoots of economic recovery have emerged, at least at a macroeconomic level.
Among the upsides is the cooling of inflation to a 17-year low of 2.7 percent in October, exchange rate stability with the shilling trading at less than 130 units to the dollar from a high of Sh160.75 at the end of January.
This even as some challenges persist, including high pending bills, cash-strapped households and firms and expensive borrowing costs.
“I want to tell you that all is well in the future, we have a great country that is resilient, and we have always managed to come out of the worst,” Treasury PS Chris Kiptoo told Kenyans at a public participation forum last week.
Inflation was, for instance, pushing a five-year high of 8.3 percent in July 2022 as food and fuel costs remained stubbornly high.
The cost of living, measured by inflation has since eased with changes to consumer prices falling to a 17-year low 2.7 percent in October.
The lowest measure of the cost of living since May 2007 has been anchored on lower food and fuel inflation, which makes up the major component of inflation alongside the raising of the benchmark interest rate by the Central Bank of Kenya (CBK) to counter imported inflation from a weaker Kenya shilling.
“Food inflation, which constitutes of nearly one third of the consumer prices basket, has fallen to 5.1 percent on October 2024 from 15.8 percent in October 2023, that’s a whole 10 percent drop. This can be confirmed in the shelves, check what is the price of unga today and other components. Clearly, there has been some achievement on that end. Has the cost of living been addressed? To a large extent, I can say yes,” Dr Kiptoo added.
Actions by the CBK to undertake monetary policy and foreign exchange market reforms, including reviving the interbank foreign exchange market, removing a 20 cents cap between forex ask and bid prices as well as the introduction of an electronic matching system of FX deals in the market has helped steady the shilling.
Dollar availability by players in the market has marked progress since last year’s crisis as the Kenya Shilling sits among the best performing currencies in the world this year.
The Kenya Shilling has rallied from a low of Sh160.75 against the US dollar to trade at a narrow range between Sh128 and Sh130 in recent months.
Kenya’s move to undertake a partial buyback of its debut Sh258.9 billion ($2 billion) Eurobond in February this year helped ease investor jitters, some of whom expected the government to default on its external debt liabilities for the first time ever.
The end of the investor gloom helped drive foreign/dollar inflows into domestic issued government securities, helping form the base for the unit’s year to date performance.
The return of the foreign inflows has further helped the CBK to grow its imports buffer known as the official reserve to Sh1.2 trillion ($9.276 billion) as of Thursday last week, or an equivalent 4.8 months of import cover.
The reserves, which remained under pressure through the exchange rate prices, are now back above both CBK’s statutory requirement of four months import cover and the East African Community (EAC) convergence criteria of 4.5 months.
Gross domestic product (GDP) has meanwhile held steady in the face of economic pressures with annualised growth coming in at a higher 5.6 percent in 2023 compared with 4.9 percent in 2022.
The steady growth has been primarily anchored on improved rainfall, which has helped to improve productivity in the agricultural sector and the continued recovery of the services sector previously been bogged down by the effects of the pandemic.
Growth in 2024 has remained largely unchanged with GDP expanding by five and 4.6 percent in the first and second quarters, respectively.
However, macroeconomic challenges remain, including the unresolved stock of high pending bills, depleted consumer purchasing power from fresh statutory deductions and high commercial bank interest rates.
The National Treasury has admitted the squeeze from the debt bulge which has limited the fiscal space to support other key expenditures such as development.
“The country still faces challenges such as high debt levels and the impact of climate change. Climate change poses significant risks to the country’s agriculture. With regards to debt vulnerabilities, our country still faces significant challenges, which limit our fiscal space and constraints the broad-based development programme,” said Dr Kiptoo.
President Ruto has appointed various task forces to help address remnant challenges, including the pending bills verification unit which is to clear legitimate arrears and a public debt audit unit to assess the portfolio of Kenya’s outstanding debt liabilities.
The government is meanwhile betting on the lowering of interest rates by the CBK from August this year to not only reduce the rates of commercial bank borrowing but also lower the cost of loans to the Exchequer from the domestic credit market.
The CBK and the National Treasury have pressured commercial banks to cut interest rates on loans to customers in the backdrop of two consecutive interest rate cuts in August and October, which have left the benchmark rate at 12 percent from a multi-year high of 13 percent earlier this year.
Yields on Treasury bills have edged lower since August, reflecting the impact of the lower CBK benchmark interest rate.
Lower domestic interest rates are expected to incentivise the demand for credit in the economy with private sector credit having collapsed 22-year low of 0.4 percent in September while non-performing loans stand at highs of 18 years at 16.7 percent in August.
Revenue underperformance, however, continues to plague the Exchequer as a softer economy fails to yield the levels of tax revenues expected.
The National Treasury has blamed the poor revenue outturn in the first four months of the 2024-25 financial year to the withdrawal of the Finance Bill 2024, which punched a Sh334 billion hole in this year’s budget and deadly street protests on new taxes in June and July that constrained economic activity.
