Inside Kenya's economic recovery and growth prospects

Kenya has emerged as East Africa's largest economy, surpassing Ethiopia, with a promising 5.4% GDP growth forecast for 2025. To delve into the structural shifts propelling this growth and assess its sustainability post-2025, George Munga Amolo, Managing Partner of AMG Consulting Group, discussed key insights with CNBC Africa. Amolo highlighted the resilience of the Kenyan economy amidst recent challenges, citing the positive outlook supported by the service sector's robust performance and thriving agricultural exports. The country's heavy reliance on foreign remittances has also contributed to economic stability. Notably, the Central Bank's progressive interest rate reductions aim to spur credit expansion, potentially driving real sector investments. However, private sector lending remains subdued, primarily due to underperforming sectors like manufacturing and tourism. While commercial banks favor low-risk government securities, public sector borrowing strains fiscal resources, warranting a shift towards private sector support. The government's pledge to maintain tax levels in the 2025-26 budget reflects a political concession amid public resistance to new tax initiatives. Amolo emphasized the need for prudent fiscal management to optimize existing revenue streams and curb economic downturns. Recognizing the tax saturation point, he cautioned against further taxation, highlighting the correlation between disposable incomes and overall economic growth. Strategic resource allocation and enhanced financial governance are crucial to sustain Kenya's economic momentum and promote long-term fiscal stability.