NAIROBI, Kenya, Jan 23 – Kenya’s economy is expected to remain subdued in 2023, growing at an estimated 5 per cent, pulled down by a persistent rise in commodity prices, global events, and a high risk of debt distress, a new report shows.
According to the report titled, Macro-Fiscal Analytic Snapshot 2022/23, released by the Institute of Public Finance(IPF) in collaboration with the Oxford Policy Management (OPM, the deferment of fiscal consolidation in 2020 and 2021 has made it difficult for the country to attain the necessary economic stability and resulted in the move from a medium to a high risk of debt distress.
“The last two years saw the government set revenue and fiscal deficit targets that were overly ambitious. With limited buffers against external shocks, the government is finding itself in a tight spot as it tries to navigate the global tightening of the monetary policy and rising debts interest payments,” James Muraguri, Chief Executive Officer, the Institute of Public Finance said.
However, the report noted that there is an opportunity for the economy to register a remarkable upward trend if the government focuses more on fiscal consolidation efforts that include cutting back on non-priority expenditures to increase investment and help tame runaway inflation.
Muraguri noted that while there have been efforts by the current government to tighten its fiscal policy, more needs to be done in terms of cushioning Kenyans against the runaway inflation, effects of the Russian-Ukraine war and the depreciating value of the Kenyan shilling against the US Dollar.
“With this in mind, we expect a change in policy direction focusing more on fiscal policy coordination to address surging price levels, cushion citizens facing hunger and starvation and the successful distribution of subsidized fertilizer during the upcoming long rains,” Muraguri said.
On donor support, the report notes that it has been on a fluctuating trend between 2016 and 2020.
While there was an increase in total Official development assistance (ODA) disbursement in the years 2017, 2019, and 2020, of 12, 21, and 24 per cent, respectively, the increase was because of expanded assistance to the education sector, health sector, WASH, production, and the humanitarian sector.
However, there has been a decline in support for the economic infrastructure and services sector post-pandemic, partly because of a change in commitment from the financing partners.
Toward this end, IPF noted that there is a need for the government to shift from donor reliance and to develop a domestic resource mobilization strategy to bridge the budget gaps currently being witnessed.