Kenya on the brink of a possible recession, experts now warn

By Steve UMIDHA

Kenya is heading into a recession and it could be twice as bad as previously thought, according to economic forecasters at the business consultancy, Institute of Public Finance (IPF).

Inability by the Kenya Revenue Authority (KRA) to raise enough money through taxes, a toxic taxation regime as well as worsening outlook, are some of the concerns that have led to the firm’s analysts to conclude that the next few months could be worse than what they anticipated some months ago.

As a result, they believe the country should brace for a likely recession even as the State struggles to implement austerity measures amid a worsening global fiscal situation.

The Nairobi-based economic analysis think tank also noted that the William Ruto – led administration’s decision to reduce budget allocations to high-impact sectors like Agriculture and Social Protection that have the potential to support inclusive growth, may also work against him.

The firm’s Chief executive James Muraguri points at the mismatch between the government promises to the poor million Kenyans compared to the budgetary allocation to the priority areas is a cause for worry given the current economic hardships.

“Our review of the current budget proposals reveals serious gaps between the government’s need to consolidate its fiscal agenda as well as drive economic stability. From our analysis, there seems to be a misalignment or less prioritization of critical sectors of high impact,” he noted.

According to the National Treasury Budget proposals, the government seeks to spend Sh3.6 trillion, a budget that is expected to support inclusive economic growth, restore consumer confidence through price stabilization, mobilize revenues, rationalize expenditures, and ultimately reduce the fiscal deficit.

The work ahead, according to him, will now be to address the ‘how to balance between expenditure cuts and debt servicing, and the protection of the poor and vulnerable.’

It classifies the government’s priority programmes under two categories: “core pillars” and “enablers”.

The core pillars are anticipated to have the highest impact at the bottom of the economy, whereas the enablers create a conducive business environment for socio-economic transformation.

The core pillars are Agricultural Transformation, Micro, Small and Medium Enterprise (MSMEs), the Housing Agenda, Healthcare, Digital Superhighway and the Creative Industry.

The inability of KRA to meet its revenue collection targets remains a worry, given the country’s huge debt obligations.   

The downgrade by IPF is at odds with Tuesday’s pronouncements by President Ruto who said the country will avoid any attempt to borrow externally to pay its civil servants whose March remuneration is due, amid rising protests and strike threats from union groups.

Kenya spends at least 65 percent of all revenues generated by the KRA on national revenue while over US$420million is spent on salaries and remunerations.

This comes even as the World Bank and the International Monetary Fund separately warned of a new debt crisis by numerous Sub Saharan Africa countries, Kenya included at a high risk of distress – meaning they are struggling to repay the externally borrowed loan in time.

A current-account deficit and a large external debt stock, according to economist Peter Macharia, could also expose Kenya to balance-of-payments stresses, if access to external financing continues to wane.

A range of analytical approaches suggests that business investment has been subdued partly due to the effects of Russia’s invasion of Ukraine among other factors like political fights in the form of protests, whose outcomes have reduced the size of the economy and future growth.