The National Treasury’s economic growth projections for the 2025-2026 financial year have been met with skepticism by the Parliamentary Budget Office (PBO), which advises members of Parliament on economic matters. The Treasury has estimated a growth rate of 5.3 percent, banking on favorable weather conditions and the successful implementation of President William Ruto’s Bottom-Up Economic Transformation Agenda (BETA). However, PBO has cast doubt on these projections, citing several economic challenges that could hinder growth.
According to PBO, slow implementation of the BETA plan, constrained fiscal space for public investments, a slowdown in private sector activities, and vulnerabilities in the agriculture sector make the Treasury’s forecast untenable. Instead, the budget advisory body projects a more modest economic growth rate of 4.8 percent for 2025.
One of the key concerns highlighted by PBO is the declining performance of critical sectors. The agriculture sector, which is central to Kenya’s economic stability, faces risks from weather-related shocks. Although some agricultural exports, such as coffee and tea, recorded improvements by 29 percent and 7 percent, respectively horticultural exports saw a 19 percent decline. Additionally, cane deliveries surged by 189 percent, thanks to favorable government policies supporting sugar production.
The industry sector has also been on a downward trend, affected by reduced activity in construction, electricity, water supply, and manufacturing. Budget cuts have stalled key infrastructure projects, leading to a slowdown in construction. Meanwhile, despite a drop in fuel prices, tax policies continue to burden manufacturers, offsetting the benefits of reduced energy costs. The services sector, which the Treasury hoped would drive growth, has also suffered, with declines in accommodation, food services, finance, insurance, ICT, and real estate.
The recent civil unrest triggered by the Gen Z protests and the budget cuts following the rejection of the Finance Bill, 2024, have further compounded economic challenges. The unrest led to a one percent drop in real-time economic growth, disrupting business activities and weakening investor confidence.
With Kenya facing declining exports, increased debt servicing costs, and limited private sector credit growth, economic recovery remains uncertain. While the Treasury maintains optimism about agricultural productivity and service sector resilience, PBO warns that without substantial reforms and policy shifts, achieving the projected 5.3 percent growth rate may remain a distant goal.
