Africa-Press – Kenya. Kenya’s economic recovery is facing renewed strain from rising global energy costs and climate-related disruptions, even as recent reforms had begun to stabilise the economy, according to the Africa Economic Compass report.
The report released in April by MCB bank, highlights Kenya as a case of improving macroeconomic fundamentals now being tested by external shocks and domestic vulnerabilities.
After a period of acute refinancing stress in 2023–2024, Kenya has made significant strides in restoring stability.
These include improved access to international capital markets, stronger foreign exchange reserves, and a sovereign rating upgrade reflecting reduced default risk.
However, the report warns that escalating geopolitical tensions, particularly in the Middle East, have introduced fresh risks for the Kenyan economy.
“Kenya has made notable progress in restoring macroeconomic stability, but the current environment highlights the importance of strengthening resilience to external shocks,” Economic Research Lead Jessen Coolen said in the report.
she says a key concern is Kenya’s heavy reliance on imported fuel, with around 60 per cent sourced from the Middle East.
This leaves the country highly exposed to oil price shocks, which are already pushing up inflation through higher fuel and fertiliser costs.
According to the report, “higher fuel import costs widen the current account deficit and risk sentiment deteriorates,” a trend that could place renewed pressure on the Kenyan shilling if global conditions worsen.
Inflation risks are also complicating monetary policy. While easing inflation had previously created room for interest rate cuts, the report now expects limited scope for further easing as price pressures persist.
“Given this backdrop, we see limited room for further easing this year and expect the Central Bank to take a cautious, data-driven approach,” the report notes.
In addition to global shocks, Kenya is grappling with the economic fallout from severe flooding, particularly in and around Nairobi.
The extreme weather has disrupted infrastructure, logistics, and business operations, adding to growth and fiscal pressures.
The report states that these climate-related shocks are “adding near-term pressure on growth, inflation and public spending needs,” compounding the challenges posed by external volatility.
Despite these headwinds, Kenya’s currency has remained relatively stable, trading at around Sh129 to the US dollar, supported by improved foreign exchange reserves and steady diaspora remittances.
Still, the report cautions that this stability could be tested if external pressures intensify.
On the fiscal front, the government’s efforts to cushion households from rising fuel prices such as potential tax adjustments and the use of stabilisation funds may provide short-term relief but could strain public finances.
“Measures to cushion households… could add pressure to an already constrained budget envelope,” the report warns, pointing to the delicate balance between supporting citizens and maintaining fiscal discipline.
The bank’s Macroeconomic Pressure Index shows that while Kenya’s economic fundamentals have improved, pressures are beginning to build again as global and domestic risks converge.
Looking ahead, the report emphasises that sustaining investor confidence will depend on continued fiscal discipline and access to external financing, including potential support from international lenders.
Overall, Kenya enters this period of uncertainty in a stronger position than in recent years, but the convergence of energy shocks, inflation risks, and climate disruptions underscores how fragile that recovery remains
