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Kenya’s Economic Trajectory In 2024: A Comprehensive Investment And Policy Analysis

BY Steve Biko Wafula · January 29, 2024 07:01 am

KEY POINTS

The Central Bank is likely to maintain a tight monetary policy to control inflation and support the Kenyan shilling. While short-term interest rates are expected to remain high, a stabilization is anticipated in the medium term, particularly post-June 2024, following the redemption of the 10-year Eurobond.

GDP Growth: A Balanced Path Ahead

In 2024, Kenya’s GDP is expected to grow by 5.0%-5.4%, propelled by a resurgence in business activities, a thriving agricultural sector, and a vibrant services sector, particularly in IT and tourism. Despite these promising indicators, this growth trajectory faces challenges from stringent monetary policies, debt risk, inflationary pressures, and currency devaluation.

Inflation: A Return to Stability

Inflation forecasts for 2024 are moderately optimistic, with expectations of an average rate of 6.9%, aligning with the government’s target range. This anticipated decrease from the 7.7% rate of 2023 is attributed to agricultural improvements and the effects of stringent monetary policies. However, concerns over high electricity and fuel costs, along with the Kenyan shilling’s depreciation, suggest ongoing inflationary challenges.

This graph shows the trend in inflation rates from 2023 to 2024. The declining line from 7.7% in 2023 to a projected 6.9% in 2024 indicates a downward trend in inflation, aligning with the economic outlook presented in the analysis.

Currency Concerns: Navigating Depreciation:

The Kenyan Shilling is projected to face a decline, trading between Kshs 183.2 and Kshs 189.6, with a potential depreciation of 16.4% against the USD. This is primarily due to Kenya’s status as a net importer and increasing debt servicing demands, which strain forex reserves, especially with the looming maturity of the 2014 Eurobond issue in June 2024.

Interest Rates: Steady Yet Cautious

Government Borrowing: An Aggressive Stance

Kenya’s government is expected to intensify borrowing efforts in 2024, seeking Kshs 703.9 bn to address a fiscal deficit equivalent to 3.9% of the GDP. This approach includes seeking concessional loans and commercial financing. Despite upward tax revisions and enhanced revenue collection strategies, these aggressive borrowing plans may weigh heavily on the country’s financial stability.

This chart illustrates the projected distribution of government borrowing in Kenya for the fiscal year 2024/25. Each segment represents an equal share, assuming a balanced division among domestic market borrowing, foreign market borrowing, concessional loans, and commercial loans.

Investor Sentiment: Cautious Optimism Ahead

Investor confidence in 2024 might remain subdued initially due to inflationary pressures and currency challenges. However, a positive shift is anticipated in the medium term as the government addresses its debt obligations and public-private partnerships gain momentum in financing viable projects.

Security: A Stable Outlook

Political stability and effective dispute-resolution strategies are expected to maintain a secure environment in Kenya throughout 2024, presenting a favorable condition for investors and policymakers.

Fixed Income Outlook: A Strategic Approach

Investors are advised to focus on short-term fixed-income instruments in 2024 to mitigate risks associated with the predicted high-interest rates, especially considering the government’s borrowing plans and debt maturities.

Equities Outlook: Cautious Short-Term, Optimistic Long-Term

The Kenyan equities market presents a neutral outlook in the short term but leans bullish in the medium to long term. Factors influencing this include projected GDP growth, an improving business environment, and the performance of the listed sector. However, currency devaluation and investor hesitancy could dampen short-term growth prospects.

It is important to note that this analysis serves as a vital guide for investors, retailers, and policymakers navigating Kenya’s economic landscape in 2024. Balancing opportunities with potential risks will be key to leveraging the country’s economic potential effectively.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com