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President William Ruto at State House Nairobi where he assented to the Supplementary Appropriations Bill. [PCS]
The World Bank has delivered a mixed economic scorecard on President William Ruto’s administration.
In a new report on Kenya published Tuesday, the World Bank highlighted improvements in key macroeconomic indicators but raised concerns over persistent job scarcity for the youth and shortcomings in poverty reduction efforts.
The report, Beyond the Budget: Fiscal Policy for Growth and Jobs, noted that while macroeconomic indicators have shown improvement since 2024—including declining inflation, a stabilized exchange rate, and stronger international reserves—the overall pace of economic growth has slowed dealing a blow to job creation and poverty reduction efforts.
Kenya’s real gross domestic product (GDP) is expected to pick up gradually in the medium term, with growth projected to increase from 4.5 per cent in 2025 to about 5.0 per cent in 2026–27.
The economic slowdown stemmed from multiple challenges, including floods, high interest rates, and subdued business sentiment following protests in mid-2024, alongside reduced development spending due to fiscal consolidation efforts.
The new World Bank findings come as the Ruto administration continues to face increasing social pressure to implement its promises for job creation and stabilising the economy.
The Bank maintained that reforms to strengthen fiscal sustainability in an equitable way, while promoting inclusive growth and jobs, are deemed critical to revive a slowing economy and a weak labour market.
Despite resilient agriculture, strong remittance inflows, and a rebound in services, growth was further dampened by weak industrial activity, sluggish private consumption, and policy uncertainty that constrained investment and formal employment growth.
“Despite improvements in Kenya’s macroeconomic indicators, the country continues to face structural challenges, including insufficient job creation and low wages, especially among the youth,” said Qimiao Fan, the World Bank Division Director for Kenya, Rwanda, Somalia and Uganda.
The report’s assessment has revealed the stark realities for young Kenyans, often referred to as ‘Gen Z’, seeking formal employment. Formal wage employment growth declined to 2.4 percent in 2024.
While total wage employment grew by 3.9 per cent, this was largely driven by the informal sector, which expanded by 4.2 per cent and now accounts for approximately 85 per cent of all jobs.
Worryingly, the share of formal jobs has steadily declined from nearly 20 per cent in 2010 to 15 per cent in 2024.
Furthermore, real wages have remained largely stagnant for over a decade, with average monthly real wages in both public and private sectors converging to around Sh70,000, near their lowest level in the past two decades.
On poverty, the World Bank highlighted that while Kenya’s fiscal system does reduce inequality, it is “falling short on poverty.”
“Fiscal policy is more than a budgetary tool—it’s a lever for equity. Kenya’s system helps narrow inequality, but it is falling short on poverty. To make it work for the poorest, we must spend smarter, not just more,” said Naomi Mathenge, Senior Country Economist for World Bank Kenya.
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The report suggested that expanding cash transfers could yield significant gains, providing fiscal space for more efficient and targeted support for the poor.
It also recommended well-targeted value-added tax (VAT) reforms, especially when paired with complementary social protection and pro-growth measures, to enhance Kenya’s fiscal space. Investment in health and education also remains important for long-term gains.
Revenue collections have been underperforming, with income tax and VAT being key contributors to the shortfall. This revenue gap, combined with elevated debt-servicing costs, underscores the need for more efficient revenue and expenditure policies, noted the World Bank.
The economic outlook faces several downside risks, including fiscal challenges, adverse weather, and external shocks. However, potential upside scenarios exist.
The World Bank stressed that accelerated economic reforms, including further improvements in public financial management, expenditure efficiency, and governance, could enhance investor confidence and spur economic activity, making fiscal policy a powerful engine for reducing poverty and creating more and better jobs.
Kenya’s public debt remains at a “high risk of distress,” with interest payments absorbing about a third of the country’s tax revenue, according to the latest World Bank Kenya Economic Update.
The country’s budget deficit increased to 5.1 per cent of GDP in the second supplementary budget in March 2025.
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