Kenya's Economic Growth Downgraded

By Duncan Miriri

NAIROBI (Reuters) – The World Bank downgraded Kenya's economic growth estimate for this year to 4.7% from 5.0%, citing the impact of floods, anti-government protests, and flailing fiscal consolidation efforts.

The East African nation has managed to stabilize its foreign exchange rate, boost hard currency reserves held by the central bank, and lower inflation this year. However, it still faces a high risk of debt distress, as noted in a new report.

> "Debt vulnerabilities including elevated debt servicing costs, accumulated pending bills, and missing revenue targets remain key challenges," the bank stated in the Kenya Economic Update report, published twice a year.

Although the growth estimate for this year is lower than last year's rate of 5.6%, it will still exceed the sub-Saharan Africa average of 3.0%. Furthermore, Kenya's growth is projected to rise to 5.1% in the medium term if the government effectively addresses fiscal challenges.

The World Bank highlighted that revenue shortfalls led to additional spending cuts, and rising financing needs caused increased domestic borrowing.

The economy faces additional hurdles due to social unrest and financial risks. Deadly protests in June compelled President William Ruto to abandon tax hikes planned to generate over $2 billion in revenue, negatively impacting investor sentiment. The protests followed widespread flooding in April and May, causing further disruptions.

The report also indicated a growth in non-performing loans within the banking sector as borrowers struggle with high interest rates and reduced economic activity.

The bank urged the government to address "structural imbalances" that hinder Kenya's pursuit of sustained and inclusive growth aimed at creating higher quality jobs for its citizens.