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Kenya’s Economy Remains Remarkably Resilient Despite Uncertainty and Concerns Over Raging Debt

  Nov 23, 2017

The International Monetary Fund (IMF) 2017 Regional Economic Outlook report presented on 21st November 2017 by IMF Resident Representative, Jan Mikkelsen, illustrated the great resilience demonstrated by the Kenyan economy, despite peeking debt deficits which continue to be a major cause of worry. The report also unveiled great economic growth promise despite economic slowdown experienced across Sub Saharan Africa.

Kenya’s economic growth is accelerating slightly faster than most countries in the region, with forecast pointing towards a 5% steady growth trajectory. The 2nd quarter of the country’s economic performance is quite similar to 2016 2nd quarter’s performance. “Despite the uncertainty about the election and a slowdown in economic activity in recent months, the Kenyan economy remains remarkably resilient, as demonstrated by relative stability in financial markets. This resilience reflects Kenya’s strong tradition for macroeconomic stability and a business-friendly economic environment,” remarked Jan Mikkelsen, IMF Resident Representative.

However, there are significant challenges ahead, including containing fiscal risks and reducing public debt vulnerabilities. Moreover, there is a need to address a stagnating credit growth to the private sector.

Most of the countries in Sub Saharan Africa are currently battling huge debt deficits, which have been greatly propelled by the fiscal policies in various countries. Although Sub Saharan Africa’s growth story has picked up, if debt management is not properly addressed, this could be lower than expected. “The economic conditions in Sub – Saharan Africa are improving modestly, with real growth expected to pick up from 1.4% in 2016 to 2.6% in 2017. However, this can only be sustained if significant policy challenges are addressed.  Most notably, there is an urgent need to tackle rising debt vulnerabilities,” said Mikkelsen.

Public debt stocks have risen throughout the region mostly driven by large fiscal deficits and in some countries by exchange rate depreciation. The median public debt in Sub-Saharan Africa rose from 34% against the GDP in 2013 to 48% in 2016.

“Policies to strengthen the recovery in the region should include (i) addressing debt vulnerabilities, primarily by reducing fiscal deficits, (ii) putting the emphasis on revenue mobilization since this will have the lowest negative impact on economic activity, and (iii) fostering economic diversification.”

Concluding his remarks, Mikkelsen emphasised the significance of exploring various policy options, such as (i) reducing the fiscal deficit through revenue measures and expenditure restraint, while protecting the vulnerable, (ii) eliminating the interest rate caps while ensuring competition in the banking sector, and (iii) investing in investments, i.e, strengthen the public investment management framework.”

A panel of discussants comprising Veronica Okoth, Director, Economic Pillar – Vision2030 Kenya and Professor Robert Mudida, Director – Strathmore Institute of Public Policy and Governance gave some perspectives into the findings of the report.

“Our major challenge in managing fiscal deficits has been significantly influenced by our recurrent expenditures. We need to improve our public finance management, whilst taking count of both short term and long term economic growth strategies. We must also consider the country’s informal sector which is also a great contributor of the economic structure and other factors such as the ease of doing business in Africa.  However, all these interventions can only be materialized if we have strong institutions,” remarked Prof. Mudida. 

Veronica Okoth shared the following remarks in conclusion, “although borrowing to fund investment projects is the most common mode of financing developmental projects, we must keenly consider the sustainability of our debt payment plans. My perspective concurs with those illustrated from the findings, that revenue collection through the expansion of the tax base can significantly improve our economic activities. Additionally, Kenyans must also be proactive in developing production based industries such as agriculture and manufacturing.”

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