Kenya’s economy continues to demonstrate resilience, supported by a combination of prudent fiscal measures, policy interventions, and favorable external conditions. As we step into the second quarter of 2025, several key indicators reflect the country’s strong economic foundation and its efforts to foster sustainable growth.
Currency Stability and Forex Reserves
The Kenya Shilling has remained stable at 129 against the US dollar since August 2024. This stability has helped reduce pressure on importers and businesses reliant on foreign Exchange.
Forex reserves have increased to $9.9 billion as of 27th March, which is equivalent to 5.1 months of import cover. This is a positive sign, as it boosts confidence in Kenya’s ability to meet external obligations.
Private Sector Outlook and Monetary Policy
Regarding the private sector, we anticipate growth following the recent rate cut to 10.75% in February, which is expected to boost business activity and encourage investment. However, we are waiting for the latest PMI report to get a clearer picture of this.
Fuel Prices and Inflation Control
We have seen fuel prices remain unchanged for better parts of 2025, with super petrol retailing at Sh176.58, diesel at Sh167.06, and kerosene at Sh151.39 in Nairobi. Stability has been maintained despite global oil fluctuations, thanks to the Government-to-Government oil deal and EPRA’s price stabilization policies, which have supported economic recovery, keeping inflation low and strengthening the shilling.
Tax Revenue and Fiscal Management
The government has collected Sh1.4 trillion in tax revenue in this fiscal year, compared to Sh1.37 trillion in the same period last year. However, it still needs to raise Sh1.07 trillion in the next four months to meet its target and prevent a widening fiscal deficit. This shortfall threatens recurrent expenditure of Sh2.1 trillion, which covers salaries, debt servicing, and operations.
Additionally, cuts in development spending have weakened economic activity, reducing tax inflows. For the Kenya Revenue Authority (KRA)to meet its revenue needs and avoid a fiscal crisis, it needs to broaden its economic recovery measures and expansionary policy shifts.
Eurobond Performance and Investor Sentiment
Well, at the beginning of March, Eurobond yields declined following a positive S&P credit rating on Kenya. However, yields started rising after Kenya’s 2027 Eurobond buyback and the announcement of an IMF backstop to its lending programs with Kenya. In our view, this signal rising investor concerns over Kenya’s debt management.
Q2 2025 Economic Outlook
Looking ahead, the outlook for Q2 2025 remains positive. We await a softening inflation, particularly food inflation, as we look forward to strong agricultural output supported by the favorable rains.
Additionally, stable shilling should help reduce import-driven inflation. We also anticipate growth in the Private Sector as the economy responds to February’s rate cuts.
In summary, while challenges such as fiscal deficits and investor concerns persist, Kenya’s economic trajectory in 2025 appears promising, underpinned by sound macroeconomic fundamentals, supportive policy actions, and growing market confidence.
