Kenya, like many other nations, is facing the pressing challenges brought about by climate change. Its economy relies highly on climate-sensitive sectors like agriculture, water, energy, health, tourism, and wildlife.
These sectors are estimated to contribute about 50 percent of the country’s gross domestic product (GDP).
Suppose the climate change impacts of droughts, floods, diseases, and unpredictable weather patterns remain unattended. In that case, according to World Bank projections, Kenya will be poised for an economic liability of about 2–2.8 percent of its GDP each year through 2050.
Building on the foundations of the Climate Change Act 2016, the Public Finance Management Act 2012, and Climate Finance 2018, Kenya has taken bold steps in integrating climate finance strategies into its national Budget. The Nationally Determined Contributions (NDCs) presented to the Paris Agreement, 2015—a convention of commitments by countries to reduce global greenhouse gas emissions—are yet to be achieved due to the climate finance gaps.
Even though Kenya is among the world’s most minor contributors to emissions, it is also among the most vulnerable to climate-related shocks. According to the NDC 2020, the country needed about $62 billion, where 13 percent would be obtained from the mobilisation of resources and 87 percent from international assistance in the form of grants. This is unlike the first NDC, which was fully conditional on support.
However, this target has not yet been met and has become an African problem. The developed countries’ commitment to support developing countries through 2020–30 and meet their respective NDCs has also not been met due to insufficient funds.
In efforts to close this financial gap, debt continues to be the most-utilised solution to meet climate adaptation measures. As of 2023, the government debt to GDP stood at about 67 percent of the GDP and is expected to reach 67.5 percent by the end of 2024.
There should not be a point when the country must choose between development and climate-resilient measures. The synergy of the public and private sectors is working towards creating non-debt opportunities and scaling up climate-related investment opportunities for funding.
The Central Bank of Kenya is on the lookout for greening the banking sector. It has submitted a draft of the Kenya Green Taxonomy to act as a tool to determine sustainable economic activities and make informed investment decisions.
This comes when all sectors are expected to work towards Vision 2030—to transform it into an industrialised middle-income country. However, historical pitfalls in budgetary allocation must be addressed for the upcoming fiscal year.
As the financial year 2024–25 approaches, Kenya is at a crossroads in delivering economic development and resilience. Can Kenya balance the funding scales across sectors and overcome this economic and resilience challenge? The upcoming Budget will be the tell-all as Kenya writes its green chapter in history, turning the page towards a climate-resilient future.
Considering the miss in the NDC's estimated budget, the grants becoming unsustainable and exacerbated by reportedly higher disbursement rates than loans, it is high time the Country’s key sectors collaborate to develop climate-related investments that can effectively address the current financial gap. Recent climate adaptation reports show that African governments invest more resources in climate adaptation than the support provided by bilateral development finance institutions to the region (19 percent vs 11 percent). This comes when the same Governments are struggling to meet economic development plans.
There should not be a point when the country must choose between development and climate-resilient measures. The synergy of the public and private sectors is working towards creating non-debt opportunities and scaling up climate-related investment opportunities for funding.
The Central Bank of Kenya is on the lookout for greening the banking sector. It has submitted a draft of the Kenya Green Taxonomy to act as a tool to determine sustainable economic activities and make informed investment decisions. This comes when all sectors are expected to work towards Vision 2030 —to transform it into an industrialised middle-income country. However, historical pitfalls of disproportionality in budgetary allocation must be addressed for the upcoming fiscal year.
As the financial year 2024-25 approaches, Kenya is at a crossroads in delivering economic development and resilience. Can Kenya balance the funding scales across sectors and overcome this economic and resilience challenge? The upcoming Budget will be the tell-all as Kenya writes its green chapter in history, turning the page towards a climate-resilient future.
Caroline Ndegwa is an Associate at Ernst & Young LLP (EY). The views expressed herein are not necessarily those of EY.
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