Elim Capital’s 2025 economic outlook for Kenya

Kenya's economy is facing multiple challenges, including a slowdown in domestic revenue collection and high interest rates that have put a strain on the economy leading to a contraction. CNBC Africa recently interviewed Economist and CEO of Elim Capital, Odhiambo Ramogi, to shed light on the country's economic outlook for 2025. Ramogi highlighted several key issues affecting the Kenyan economy including interest rates, exchange rates, tax policies, and political uncertainties. One of the major concerns raised was the stagnation of interest rates at 11%, with hopes for the Monetary Policy Committee to initiate easing to bring them down to 7.5%. However, this process is expected to take several months. He also discussed the stability of the exchange rate against the dollar, with slight fluctuations expected due to global factors such as the swearing-in of a new U.S. president. On the fiscal side, there are concerns about high tax rates and the impact on citizens' incomes. Despite the failure of the Finance Bill 2024, new tax amendment bills were passed and signed into law, continuing the fiscal consolidation program guided by the IMF. Ramogi emphasized the need for government intervention to boost production in key sectors like food and manufacturing to stimulate economic growth. Moreover, he highlighted the uncertainty surrounding trade negotiations with the U.S. and the potential impact of global shocks on Kenya's economy. In terms of revenue collection, there are challenges related to public perception of tax usage and corruption, which deter citizens from paying taxes willingly. Ramogi called for a national dialogue on tax rates and governance to address these issues and increase taxpayer compliance. The interview also touched on the political landscape in Kenya, citing potential tensions leading up to the 2027 elections and the need for electoral reforms to ensure transparency and accountability. Despite calls for austerity measures by the National Treasury, Ramogi expressed skepticism about their practicality given the current economic conditions, emphasizing the importance of monetary easing and tax reforms before considering austerity. He cautioned that implementing austerity measures too soon could worsen the economic situation and urged a more strategic approach to address the challenges ahead.