Research trip to Kenya

In September 2024, a member of the Emerging Markets Fixed Income team traveled to Kenya to meet with officials from the World Bank, the Central Bank of Kenya and its Ministries of Finance and Economic Affairs. Kenya is the largest economy in East Africa. Its economy is well developed, dynamic and diversified, with the service sector as its backbone. The capital city, Nairobi, has become an important financial center in the region due to its highly developed financial infrastructure. Kenya is also a major transportation hub, with the port of Mombasa handling a significant proportion of East African trade flows.

However, Kenya was faced with tight financing conditions in early 2024. At the time, the prospect of an exceptionally large amount of debt maturing in June, combined with prolonged tight financial conditions, led investors to worry about the country's ability to continue servicing its debt. In the domestic market, refinancing costs rose and the local currency depreciated almost uncontrollably. In the end, the country successfully issued new debt instruments for external and domestic markets in February 2024, ending its fiscal troubles in the short term.

The government's fiscal consolidation plans overcame the immediate, high-risk financing challenges but were met with significant public protests. The escalation of the demonstrations took an unfortunate turn, but the pressure on the government ultimately led to a dialogue that has the potential to foster a more inclusive growth path. The government has accepted the need to balance fiscal objectives with social acceptability.

Kenya also continues to enjoy a very supportive and constructive relationship with international financial institutions. The IMF and the World Bank are expected to continue to work closely with the government. The country's macroeconomic situation appears generally supportive: GDP growth is likely to remain strong at close to 5% this year. Inflation is well within the central bank's target range, with a 3.6% year-on-year rise in September. Real interest rates are very high.

The positive fiscal trajectory is supported by international financing partners and is expected to continue to provide fiscal room for maneuver for the government. Foreign exchange reserves have grown rapidly in 2024, supported in particular by international portfolio investment. The current account deficit has narrowed due to supportive exports, especially tourism receipts, and strong remittance inflows.