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IMF cuts Kenya's 2025 economic growth forecast

Business

By Brian Ngugi | Oct 23, 2024

The International Monetary Fund (IMF) has cut Kenya’s economic growth forecast for this year and 2025 by nearly one percentage point, marking the largest downgrade among major regional economies in under a year.

According to the latest projections in its World Economic Outlook (WEO), Kenya's GDP is expected to grow by a 5.0 per cent in both 2024 and 2025.

This revision comes as a stark contrast to earlier forecasts and reflects broader economic challenges faced by Kenya.

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“The growth remains subdued and somewhat uneven in Sub-Saharan Africa,” noted Pierre-Olivier Gourinchas, the chief economist of the IMF during a press briefing with reporters held at the IMF headquarters in Washington, D.C.

He emphasised that persistent high debt service levels in the region continue to weigh heavily on economic prospects.

Earlier this month, the Central Bank of Kenya (CBK) also lowered its growth projections for 2024 to 5.1 per cent from an earlier estimate of 5.4 per cent.

During a press briefing on October 9, Governor Kamau Thugge highlighted a worrying deceleration across essential sectors such as construction, mining, and quarrying.

The downward trend in economic activity threatens to undermine the government's efforts to address rising living costs and create jobs—key priorities for President William Ruto's administration.

As Kenya grapples with fiscal strain, the youth, particularly Generation Z, has been increasingly vocal about their frustrations regarding limited job opportunities and the rising cost of living.

The current economic trajectory casts a long shadow over hopes for job creation, as the slowdown could exacerbate social discontent and political instability.

Analysts warn that failure to meet the expectations of the youth could lead to increased unrest, with the younger population advocating for better economic opportunities and improved living standards.

Adding to the grim economic outlook is a tightening credit environment. Despite the CBK's recent reduction of the Central Bank Rate (CBR) banks remain hesitant to extend credit to businesses and households, citing rising costs and deteriorating loan quality.

This reluctance risks stifling economic recovery efforts, as access to credit is vital for stimulating growth.