Kenya has been growing robustly for many years, but has not used this opportunity to reduce vulnerability to shocks – deficits have been unsustainably high, and debt service is so high that Kenya has to be cautious about expanding non-concessional debt even during a crisis. The budget deficit approached 8% in 2019, following years of rapid expenditure growth and worsening revenue performance.
The gradual decrease in revenue as a share of GDP is likely linked to the changing structure of Kenya’s economy, with the informal sector growing faster than the formal sector, and tax incentives remaining commonplace and generous. Despite this, revenue remains a strength in Kenya compared to its peers, at 18.2% of GDP (compared to 12% in Ethiopia, for example). Kenya’s economy is diverse and services have grown strongly in recent years.
Institute of Public Finance