Kenya’s Central Bank forecasts economy reboot after peaceful political transition

Saturday September 24 2022

The Central Bank of Kenya says the economy is expected to remain “strong” this year despite weaker global growth and economic shocks. PHOTO | JEFF ANGOTE | NMG


The Central Bank of Kenya is projecting a better performance for the country’s economy, leaving behind months of electioneering and uncertainty that saw it fail in a Eurobond launch earlier in the year.

Kenya swore in its new president on September 13, bringing to an end uncertainty around its political future.

Now the banking regulator says the peaceful change in leadership has coincided with stabilising global prices for basic commodities, which could reboot the economy.

Central Bank Governor Patrick Njoroge told Kenyan MPs this week that the economy is expected to remain “strong” this year despite weaker global growth and economic shocks triggered by the Russia-Ukraine war.

“Economic growth is expected to remain strong in 2022. Prices of palm oil, DAP fertiliser and wheat have moderated,” said Dr Njoroge at an induction session for new MPs.

“The price of oil has moderated but remains volatile,” he added.


Kenya’s economy has been going through lean times. It has seen its forex reserves shrink as food and fuel prices rise, its shilling depreciates and credit to the private sector falls.

The economy is also saddled with debts, which now stand at $70 billion.

In June, the government cancelled a $1 billion Eurobond as a result of turbulence in the global financial markets. President William Ruto has scrapped the fuel and maize meal flour subsidy programmes to ease the government’s growing expenditure pressures.

Researchers at Cytonn Investments noted that the government’s increased accumulation of debt has not translated into economic growth, as more than 40 percent of the collected revenues have gone to repay debt.

Kenya’s public debt has increased more than five-fold to Ksh8.6 trillion ($71.66 billion) in May 2022 from Ksh1.6 trillion ($13.33 billion) in May 2012.

Cytonn noted that the public debt increased at a compounded annual growth rate of 18.2 percent in the last 10 years, compared to an average Gross Domestic Product growth of 3.9 percent over the period.

“The increase in debt is not translating into GDP growth,” Cytonn Investments said in a September 11 market report.

Debt accumulation

Mounting debt has put pressure on central bank forex reserves, further eroding the value of the shilling which is swinging at around Ksh120 against the US dollar.

“Kenya’s general business environment continues to be weighed down by the elevated inflationary pressures emanating from supply chain constraints and a depreciating local currency,” Cytonn Investments said.

“The recovery of the private sector business environment in Kenya is largely pegged on how quickly the global economy stabilises and how soon the inflationary pressures ease,” it added.

Kenya’s GDP increased by 6.8 percent in the first quarter of 2022, compared to a 2.7 percent growth in the same period last year.

However, overall inflation accelerated for six consecutive months to 8.5 percent in August from 8.3 percent in July, largely driven by high fuel and food prices.

Disbursement of loans to key economic sectors declined to 2.5 percent between April and June compared to 4.1 percent in the previous quarter.

Business environment

The elevated credit risk has led to 8.6 percent increase in gross non-performing loans to Ksh514.4 billion ($4.28 billion) in June 2022 from Ksh473.7 billion ($3.94 billion) in March 2022.

“This is largely attributable to the deteriorated business environment as a result of the increased inflationary pressures emanating from imported inflation bill,” CBK said.

“Going forward, we expect the business environment to remain subdued given the persistent supply chain bottlenecks that have seen the cost of inputs continue to rise.”