Kenya Economic Report 2022 on Building Resilience and Sustainable Economic Development in Kenya

Abstract

Kenya’s economy rebounded strongly in 2021 amid the COVID-19 pandemic disruptions, high global fuel prices and low precipitation experienced in the country during the year. The economy grew by 7.5 per cent in 2021 compared to a contraction of 0.3 per cent in 2020. The rebound followed the reopening of the economy, roll out of COVID-19 vaccination and reversal of COVD-19 tax measures that boosted revenues to support spending. Strong recoveries were recorded in services and industry while agriculture recorded a contraction. Agriculture, forestry, and fishing activities shrunk by 0.2 per cent due to dry weather conditions while all services activities recorded strong growth. The services activities that showed strong performance include accommodation and food services (52.5%), education (21.4%), arts, entertainment, and recreation (13.7%), financial and insurance (12.5%), information and communication (8.8%), wholesale and retail trade (7.9%) and transport and storage (7.2%). Industrial activities also recorded growth, with mining and quarrying growing by 18.1 per cent, manufacturing by 6.9 per cent, electricity supply by 4.4 per cent, water supply, sewerage, and waste management by 6.4 per cent, and construction by 6.6 per cent. The macroeconomic environment witnessed increased consumer prices in 2021; however, overall inflation remained within the Government’s target band. The Central Bank of Kenya continued implementing monetary accommodation to support growth while lending rates were higher in 2021 compared to 2020. The continued depreciation of the exchange rate to dollar given the global market developments put pressure on prices and cost of external public debt. Noteworthy, revenues rebounded strongly in the first half of 2021/22, with virtually all tax heads recording above target collections. Total revenue inclusive of grants exceeded the target by Ksh 28.6 billion while improved growth was posted in Pay as You Earn (PAYE), Value Added Tax (VAT) imports, excise duty, appropriations-inaid, and corporate income taxes. These resulted into narrowing of fiscal deficit in the first half of the year.