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Major Risks That Will Face The Kenyan Economy In 2023

BY Soko Directory Team · January 30, 2023 09:01 am

KEY POINTS

Kenya is currently at risk of high debt distress with the country’s debt-to-GDP ratio currently at 62.3 percent, 12.3 percent above the recommended IMF threshold of 50.0 percent for developing countries.

KEY TAKEAWAYS

The total debt is nearly breaching the debt ceiling and with the projected 695.2 billion shillings for FY’2023/24 borrowing, the government would need to consider a new debt ceiling as the debt is likely to surpass the 10.0 trillion shillings mark in the near term.

The Kenyan economy has an uphill task to sail through this year. Given the struggling performance of the Kenyan shilling, and with investors skeptical of the Kenyan taxing policies, the economy is going to need more than hope and prayers this year.

Here are some of the risks that the economy should expect:

High risk of debt distress

According to International Monetary Fund and the World Bank, Kenya is currently at risk of high debt distress with the country’s debt-to-GDP ratio currently at 62.3 percent, 12.3 percent above the recommended IMF threshold of 50.0 percent for developing countries.

Kenya’s debt stood at 8.7 trillion shillings as of October 2022 which is 1.3 trillion shillings less the 10.0 trillion shillings debt ceiling.

The total debt is nearly breaching the debt ceiling and with the projected 695.2 billion shillings for FY’2023/24 borrowing, the government would need to consider a new debt ceiling as the debt is likely to surpass the 10.0 trillion shillings mark in the near term.

Consequently, the government will face significant pressure to service the existing debt with the debt service to revenue ratio standing at 51.0 percent as of December 2022.

A high level of debt reduces the prospects of economic growth as a large portion of revenues is used to service the existing debt as opposed to development expenditure.

Tightened Monetary Policy

The Central Bank increased the Monetary Policy Rate by 175.0 bps to 8.75 percent in 2022 from 7.0 percent in 2021 in a bid to anchor the elevated inflation back to the CBK’s target range of 2.5-7.5 percent from the 7.6 percent average in 2022. The high CBR is expected to stifle economic growth.

Elevated Inflation

The country’s inflation rate averaged 7.6 percent in 2022 above the CBK’s target range of 2.5-7.5 percent. Inflation is expected to remain elevated in the short term and will weigh down on the business environment.

Related Content: Mirroring The Kenyan Economy In 2023

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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