Kenya Economic Update, May 2025

The global economic context improved modestly in 2024, supported by easing inflation and a rebound in global trade. Kenya's economy has slowed despite several improving macroeconomic indicators. The external sector showed improvement, driven by recovering exports and rising financial inflows. A tighter monetary policy and moderation in global inflation have contributed to a decline in inflation. Kenya's fiscal policy challenges are multifaceted and have significant implications for the country's economic stability and growth. Increased domestic borrowing is crowding out private sector lending. Kenya's real gross domestic product (GDP) is expected to pick up gradually in the medium term with the external sector also projected to remain stable in the medium term. The economic outlook faces several downside risks, including fiscal challenges, weather, and external shocks. In the context of narrowing fiscal space, growing demand for investment in essential services, and the limited inclusivity of economic growth, there is an urgent need for a more efficient and equitable fiscal policy. Expanding the coverage and adequacy of cash transfers is essential to strengthening the poverty and inequality-reducing impact of Kenya's fiscal policy