The World Bank has called on the Kenyan government to tackle corruption to boost economic growth and raise incomes. According to the lender, governance challenges are increasingly limiting Kenya's prospects for faster and more broadly shared growth, with corruption being the key binding constraint. This comes as the bank raised its growth forecast for Kenya to 4.6% for 2024, up from an earlier forecast of 4.3%, citing faster-than-projected growth in the first six months of the year.
Corruption and collusion are estimated to cost Kenya 2% of its GDP annually through higher fiscal deficits. The World Bank notes that this translates into substantial additional borrowing needs accumulating over time. The lender also highlighted that corruption risks contribute to a higher cost of borrowing, citing a "governance premium" on sovereign borrowing. This premium refers to the increased cost of borrowing due to perceived governance risks.
The Kenyan government has taken steps to address corruption, including rolling out an electronic procurement platform aimed at reducing graft avenues and wastage. Additionally, the government has signed a conflict of interest bill. The International Monetary Fund had also shared a draft report with the Kenyan government in June, designed to flag governance weaknesses and corruption vulnerabilities.
Despite these efforts, Kenya continues to struggle with heavy annual debt repayments. The country ramped up borrowing from 2013 to finance infrastructure, and has been missing its fiscal deficit targets in recent years. The World Bank warned of risks to Kenya's economic growth, including fiscal slippage that could drive up debt.
The World Bank's biannual Kenya Economic Update report also noted that Kenya's governance challenges are increasingly limiting its prospects for faster and more broadly shared growth. The lender emphasized that addressing these challenges is crucial to achieving faster and more sustainable economic growth.
Kenya is set to hold a general election in August 2024, which could increase uncertainty, curb investment and tourism, and add to spending pressures. The World Bank warned that these factors could pose risks to the country's economic growth.
The World Bank's upgrade of Kenya's economic growth forecast to 4.6% reflects the country's resilience and potential for growth. However, the lender's warnings highlight the need for the government to address corruption and governance challenges to ensure sustainable and broadly shared growth.
Key points
- Corruption and collusion cost Kenya an estimated 2% of GDP annually.
- The World Bank raised Kenya's 2024 growth forecast to 4.6%.
- The Kenyan government has implemented measures to address corruption, including an electronic procurement platform.
