Kenya’s huge debt obligations, lower forex inflows, a plummeting currency, rampant inflation, and the pressure on oil prices, have dampened its economic outlook for this year. The rise of US interest rates is also piling pressure on the country’s banking ecosystem.

The government has made several proposals in a bid to increase tax revenues and ease the cash crunch. Its proposal to increase tax in several sectors including digital content, betting and cryptocurrency trade, expects to bring more people into the tax bracket and raise money for the exchequer.

Top on the agenda for the new administration is to ease domestic and international debt, which is projected to be at $69.18 billion by June 2023. However, the country is already seeking debt facilities from the International Monitory Fund (IMF) to ease the burden on foreign exchange and facilitate its obligation in service delivery.

Bottom-line: In the midst of financial struggles and increasing debt, the government’s view on cryptocurrency is changing favourably and might push more cryptocurrency and blockchain use in the country.

Here’s a timeline to East Africa’s biggest economy’s performance in Q1, 2023:

December 2022 – Aftershocks of Elections and Growing Crypto Interest

Kenya’s economy grew by 6% year-on-year in the first half of 2022, but faced challenges from global commodity price shocks, the long regional drought, and uncertainty in the run-up to the 2022 general elections. The elections were challenged in court but President William Ruto was sworn-in in October 2022. This was according to the World Bank report.
The Central Bank of Kenya softens its stand on cryptocurrency and considers regulation, as crypto owners in the country rise to over 6 million. Previously, the CBK had issued a warning to the public in dealing with cryptocurrency. Now, the CBK will work with Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA) and the Sacco Societies Regulatory Authority (Sassra), to create a committee to look into crypto regulation.

January 2023 – Forecasting Tough Economic Year

A report by the Institute of Public Finance and Oxford Policy Management warned of the risks of rising commodity prices, global events, and debt distress on Kenya’s economy. The report stated that Kenya’s economic growth would slow down to 5% In 2023.
The CBK trimmed its 2023 GDP growth forecast to 5.8% from 6.1%, citing lower growth in the agricultural sector due to the effects of drought. The bank also raised its benchmark lending rate to 9.50% from 8.75% to curb inflationary pressures.

February 2023 – The Forex Exchange Winter Begins

In February, the Business Daily reported that Kenya’s foreign exchange reserves dropped to a near ten-year low, breaching the 4-month cover standard, set by the CBK. The foreign reserves were equivalent to 3.88 months of imports at $6.939 billion.
Kenyan firms reported that the dollar shortage is affecting expansion plans. A CBK survey shows that financing, lingering supply chain issues and foreign exchange challenges on importation are constraining local firms’ expansion plans.

March 2023 – Meeting Harsh Foreign Exchange Market Head On

In March 2023, Kenya’s official foreign-exchange reserves fell to their lowest since 2015. At $6.6 billion as of 23 March, they were equivalent to 3.66 months of imports, according to the CBK, which has a statutory requirement to maintain at least four months of import cover.
Local banks begin to report shortage of the dollar. CBK directed commercial banks to ration dollars following a shortage of the currency and the race to protect reserves. Traders complained of not getting enough dollars to conduct imports.
As a response to the biting foreign exchange situation, the CBK announces the issuance of the Kenya Foreign Exchange Code (the FX Code) to commercial banks on March 22. The FX Code sets out standards for commercial banks, and aims to strengthen and promote the integrity and effective functioning of Kenya’s wholesale foreign exchange market.

April 2023 – Revisiting the Crypto Bill and Scavenging for the Dollar

Kenya Capital Markets (Amendment Bill, 2023), a private bill by MP Mosop Member of Parliament Abraham Kipsang Kirwa Seeks to introduce measures to tax gains on cryptocurrency, is reintroduced to the public.
In a bid to ease pressure on the dollar, the Reuters reported that Kenya would seek at least $1.2 billion in financing inflows between April and May and is in talks with the IMF to support falling foreign exchange reserves.
A section of Kenya’s government workers threatened to go on strikes over delayed salaries. Civil servants, including lawmakers, went on the Easter holidays without their due salaries for March. Other workers have gone without salaries for three months, news outlets reported. The cash crunch was a result of debt repayment amid dwindling government revenues.

May 2023 – Expanding the Tax Bracket

Japanese Prime Minister Fumio Kishida held talks with the President William Ruto and touched on increased investments on renewable energy investments in Kenya and also job opportunities in Japan for Kenyan graduates.
Kenya proposes a new regulation that will see taxes being levied on cryptocurrency transfers. The proposed law, which will be debated as part of the National Budget, seeks a 3% tax on value exchange for cryptocurrency.
As part of the Finance Bill 2023, online activities such as influencer marketing will be subjected to tax as a measure to increase inflows to the exchequer.
The combined wealth of Nairobi Securities Exchange (NSE) investors dropped to a 10-year low despite the increase in dividend payouts. Popular counters including Safaricom, Equity Bank and Kenya Commercial Bank have seen their prices fall.

-Edited by Faustine Ngila, Shigeru Sato