Kenya 'between a rock and hard place' amid economic headwinds

"What was a promising post Covid-19 economic recovery is now overshadowed by new shocks and vulnerabilities," he said during the virtual launch of the East Africa Economic Outlook 2023 by the African Development Bank.

"East African countries are grappling with the effects of these headwinds at a time when we should be consolidating policy actions to accelerate structural transformation to promote inclusive growth and build resilience across different sectors."

The Ruto administration, which took over last September, has been under pressure to bring down the cost of living and grow jobs.

But some of its proposed tax and policy measures have been questioned by various interest groups, which has stoked social tensions.

"We are working on the Bottom-up Economic Transformation Agenda with key priority areas on agriculture, healthcare, housing and settlement, MSMEs, and digital superhighway and creative economy, among others," Ndung'u said.

He said regional countries are also grappling with a growing debt burden, and disruptions to production and supply chains due to global shocks, which are elevating poverty rates and inequality.

The government has been forced to seek help from the World Bank and the International Monetary Fund (IMF) amid a deteriorating cash flow situation marked by falling revenues and worsening debt service obligations worsening the debt crisis.

It is betting on these multi-billion-shilling economic support packages to stabilise its finances.

"In Kenya, public debt increased from 58 per cent of GDP in 2021 to 61 per cent in 2022," said Ndung'u.

"The high levels of public debt and the associated debt financing costs are crowding out the fiscal space for pro-poor and growth enhancing public spending in the region.

"While on the positive side the public debt has financed infrastructure and spurred growth, there is need to ensure fiscal and debt sustainability by diversifying our development financing sources, including broadening the tax base."

The bailouts from IMF and the World Bank are tipped to help the government avert a debt default and economic collapse, amidst the persisting political and economic uncertainty, according to analysts. But the conditional deals include strict austerity plans, including a controversial public sector pay freeze and increased taxes on fuel and key commodities.