Kenya's Debt - World Bank financing and new tax measures will alleviate acute budget pressure

Public sector demand will remain subdued as the government prioritizes fiscal stability

Multinationals should offer cost-cutting or efficiency-improving solutions to public sector customers who face squeezed purchasing power that will cause delays to large investments or reduced procurement budgets. Meanwhile, all multinationals, including those selling to B2B customers, and consumers in the private sector should prepare for higher tax bills and tax collection clampdowns that will squeeze local distributor margins. Consumers, in particular lower- and middle-income households, are likely to curtail discretionary purchases in the months following the VAT hikes. This will necessitate focusing on more resilient consumer segments such as high-income households, while raising marketing spending. There will be risk of moderately commercially disruptive social unrest following the new Finance Bill implementation.


  • The World Bank approved a US$ 1 billion loan on May 30 to support Kenya’s economy; its objectives are fiscal consolidation and greater agricultural productivity.
  • Kenya acquired a US$ 500 million commercial loan from a syndicate of foreign banks on June 3 to further ease its financial pressure.
  • New tax proposals introduced through the Finance Bill (approved by MPs on June 21 and due to be enacted by July 1), including a 16% VAT on fuel, will bring more fiscal capacity to the government.
  • These developments have occurred within a deteriorating economic environment featuring shilling depreciation, FOREX shortages, and worsening public debt pressures. 
  • Private sector sentiment remains downbeat—the Purchasing Managers’ Index has been negative (below 50) since February—but certain industries, such as hospitality, wholesale and retail trade, financial services, and education, continue to outperform.

Our View

Funding secured from the World Bank and syndicated commercial bank lending will ease the acute fiscal pressures facing the government and reduce the chances of Kenya experiencing debt distress. Consequently, we do not expect Kenya to default over the next 18 months. The 2023 Finance Bill illustrates the concerted efforts the government will make in consolidating public finances. However, despite these recent positive developments, public finances will remain under pressure in the coming years. The government’s budget deficit is forecasted at 4.4% of GDP in 2024 and 3.9% of GDP in 2025. These trends will be compounded by slowing economic growth; FronterView has downgraded Kenya’s growth forecast from 5.5% YOY to 3.7% YOY in 2023, and from 5.6% YOY in 2024 to 4.6% YOY in 2024.

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