The Kenyan shilling and the US dollar.
Kenyans poured onto the streets on June 24, 2024 to demonstrate against what they claimed was the government’s poor management of the economy and rising unemployment. The government responded by reconstituting the Cabinet and bringing in “experts”, who promised to turn around the economy.
It now appears that this was not just an empty gesture meant to pacify an angry populace, but a real commitment to deal with their concerns. Kenya’s overall youth (24 years and below) unemployment in August 2022 stood at 12.19 per cent, according to multiple sources, including Trading Economics, Statista and the Kenya National Bureau of Statistics. The figure for August 2025 is estimated at 11.9 per cent.
These trends indicate that although youth unemployment in Kenya remains a major challenge, it has been on a consistent downward trajectory since August 2022, albeit on a marginal scale. The government’s adept economic management effort has been vindicated by a number of respected global institutions. For instance, Standard and Poor’s (S&P) Global Ratings on 22 August 2025 upgraded Kenya’s long-term sovereign credit rating to ‘B’ from ‘B-’, with a positive outlook.
The agency cited reduced near-term external liquidity risks due to robust exports and diaspora remittances. S&P Global Ratings is a major provider of independent credit ratings that assess the creditworthiness of companies, governments, and debt instruments such as treasury bills and bonds.
These ratings help market participants with real-time financial risk information that they require to make investment decisions. The ratings indicate the ability of entities, countries and financial products to meet credit obligations. This latest upgrade is therefore a sign of confidence in Kenya’s ability to meet her sovereign debt obligations whenever they fall due.
Key economic fundamentals
The improvement in economic outlook is underpinned by a number of key economic fundamentals that have improved recently: 7.7 per cent growth in coffee and horticulture exports; and narrowing of the current account balance from 2.6 per cent of GDP in 2022 to 1.3 per cent in August 2025 (i.e. the country’s expenditure on imports is reducing as export earnings grow).
As at 28 August 2025, Kenya had an export cover of $10,889 million, sufficient for 4.8 months. Other indicators which are on a growth trajectory are diaspora remittances, which have increased from $410.1 million in July to $427.2 million in August 2025, indicating that economic fundamentals have defied political rhetoric.
The Kenya shilling has remained stable at an exchange rate of KSh 129.27 to US$1, buttressed by a single-digit inflation rate of 4.1 per cent by the end of August 2025. Kenya has also been able to project and liquidate risks associated with the anticipated maturity of the Eurobond that falls due in May 2027, thus eliminating any potential panic in the economy. This strategic decision has earned Kenya a positive outlook as a resilient economy committed to servicing its offshore debt obligations.
As the National Treasury relentlessly pursues austerity and fiscal consolidation through innovative budget financing mechanisms such as Public-Private Partnership (PPP) programmes, there is easing of demand for Exchequer revenues to underwrite the cost of governance.
The Rironi-Mau Summit road project and Galana Kulalu food security project are examples of projects that are underway through the PPP framework. Other projects are in the energy sector. With money coming in from the private sector to implement government projects, domestic borrowing is reduced to a bare minimum. The result is considerably reduced interest rates on 91-day Treasury Bills from 16 per cent by the end of 2024 to 8 per cent in August 2025.
This has resulted in reduced lending rates to the private sector, from 17.2 per cent in November 2024 to 15.3 per cent in July 2025, with a sustainable downward trajectory. The market has responded to the reduced cost of credit by increasing its uptake from -2.9 per cent to +3.3 per cent over the same period.
This trend is expected to rise. Going forward, the government is encouraging private sector participation in economically viable state corporations, such as Kenya Pipeline Corporation and others, which are slated for divestment through Initial Public Offers (IPOs). IPOs facilitate the injection of private equity and managerial acumen into public enterprises and the streamlining of operations to focus on the core business, thus resulting in enhanced performance, wealth generation, job creation and more Exchequer revenues.
The reduction in lending rates sends a positive signal to the market that the government is not keen to compete with the private sector in business. The government is therefore focusing on its traditional role of creating an enabling environment for private enterprises to thrive. This encourages private equity owners, venture capitalists and other market players to take long positions in the economy. The result is higher capital formation, expanded GDP and increased liquidity in the economy.
Access more credit
The implications of S&P’s verdict on Kenya are therefore huge. First, Kenya may now be able to access more credit from her traditional lenders at reduced costs, and channel the same to productive sectors such as agriculture, tourism, manufacturing, the financial sector, ICT and construction. These sectors are beginning to show signs of revival after many years of neglect in favour of subsidies. Propped up by various targeted initiatives, the Kenyan economy is projected to grow at a rate of approximately 4.9–5.3 per cent in 2025, with specific forecasts varying by institution (IMF, World Bank, Kenya National Bureau of Statistics).
Recent data show a 4.9 per cent growth in Quarter 1 of 2025, driven by a strong agricultural sector performance. Projections suggest a rebound and sustained growth in the medium term, supported by government initiatives and improved agricultural productivity. The services sector, including ICT, wholesale and retail trade, and robust public administration, have contributed immensely to economic growth. The Bottom-Up Economic Agenda and Hustler Fund are providing support to the Small, Micro and Medium Enterprises sector.
Besides improvements in the macroeconomic environment, including declining inflation and reduced cost of capital, are supporting Gross Domestic Product (GDP) expansion. These economic fortunes must, however, be handled with cautionary optimism. The country is preparing for the 2027 general elections, which pundits have cautioned may turn out to be a battle royale.
General elections
War drums are already beating, and unless the process is handled with the requisite adeptness, Kenya’s economic gains that have been realised painstakingly may go up in flames within a split second. More plausibly, however, general elections tend to attract lots of cash, leading to high inflation. In such circumstances, the value of the local currency takes a beating, and offshore loans become more expensive as the exchange rates shift in favour of lenders.
There are also emerging global trade and inflation risks as major world economies and trading partners—the USA, European Union, China and others—toy with protectionist trade policies and tariffs. Last but not least, Kenya has, in the last one-and-a-half decades, developed a very sharp debt appetite. An easing of credit terms might tempt the country to go for more offshore loans to underwrite its transformation agenda that has only been slowed down somewhat by lack of adequate financial resources. Should that happen, then Kenya will most probably sink deeper into indebtedness, with a real possibility of returning to the junk zone.
The country cannot afford to drop the ball of fiscal consolidation that CS Mbadi and his colleagues at the National Treasury have so adeptly navigated over the last year. These developments have already begun to reflect in reduced prices of basic food items such as maize flour, cooking oil, onions, tomatoes, kales, cabbages, beans, rice, milk, table sugar and others.
As the economic turnaround becomes consolidated, so too are the prices of these foodstuffs expected to continue to fall. There seems to be light at the end of the tunnel. Let us keep the focus while maintaining cautious optimism.
Professor Ongore is a Public Finance and Corporate Governance Scholar based at the Technical University of Kenya. [email protected]
