Market Update: Economic models, empirical evidence reveal how Kenyan economy struggles – Full Analysis

NAIROBI: EVIDENCE from Kenyans themselves, particularly Kenyan intellectuals, indicates that economic conditions are very difficult, especially at a time when Kenyans’ attention is focused on the 2027 general elections.

Unquestionably, as the days go by, some Kenyan media outlets continue to provide Kenyans and the public with opportunities to discuss how the Kenyan economy is struggling, issues that a struggling nation would want aired publicly, given the reputation Kenya has built over the years.

Upon hearing Professor Fred Ogola, a scholar and economist from Kenya, and other Kenyan-educated scholars elucidate the current reality, focusing on how national debt is skyrocketing, taxes are being raised, corruption, the World Bank’s 30 billion for Kenyan grade 10 transactions, the sales of parastatals, and teachers and hospital doctors being on standby alert for their demands, etc., many of us are led to believe that the Kenyan economy is in trouble.

Such revelations, including what was published in the Kenyan Daily Nation on 11 February 2026, on page 12, with news such as “Judge declines to block Mandera governor’s parkland plan where apartments are built over a river” and another apartment building on land belonging to a school, testify to the depth of the issues in the Kenyan economy ahead of the 2027 general election.

It is not a negative thing to explain the Kenyan economy and the turmoil it currently faces, given statements by Kenyans and the elite themselves and the fact that Kenya is a member of the East African Community.

This will assist Kenya and other nations in avoiding the same mistakes that have led to the country’s poor economic situation, as well as the emerging issues, some of which are critical, among those rallying for the envisaged high positions in the 2027 general election.

Given that the on-theground orators are Kenyans themselves and learned ones, the world has no doubt but prays for a peaceful general election. In collaboration with Kenyan economic scholars, I will concentrate on economic issues and the circumstances that have led to Kenya’s current state.

Utilising the empirical framework of Chepkilot. Professor Ronald Chepkilot is an academic frequently associated with Kabarak University in Kenya and is a well-known and respected professor and researcher who specialises in performance contracting, management and human resources.

The focus will then be on understanding why Kenya is where it is today by critically analysing the impact of external debt servicing on private investment and economic growth.

Utilising annual time-series data (1991–2015) and recent fiscal data (2023–2024), I will analyse whether increasing external debt interest payments lead to debt overhang and crowding-out effects.

Why? From an economic perspective, the reduction in fiscal space and the restriction of privatesector credit are consequences of increased debt servicing, which, in turn, discourages private investment. Decreased private investment has a significant impact on many issues, including job creation.

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Fellow Kenyans need to understand that analysing the state of their economy using economic models that are not deceptive but rather offer the opportunity to restructure and organise economic affairs will ensure that Kenyans can reap the benefits of their nation.

From an economic perspective, when a country faces future debt repayments, investors anticipate higher taxation or greater macroeconomic instability, which reduces investment incentives.

Likewise, government borrowing absorbs available financial resources and, if not well managed, creates conditions conducive to higher interest rates and lower private investment.

In this context, Chepkilot (2024) found that, based on data for 1991–2015, GDP growth in Kenya is negatively and statistically significantly correlated with interest payments on external debt.

This finding was also substantiated by Kenyan scholars such as Kioko and Wanyonyi (2025), who demonstrated that private investment is adversely affected by both domestic and external debt.

Following the application of regression analysis to assess the impact of external debt interest payments on GDP growth, the impact of debt servicing on private investment, and the relationship between GDP growth and external debt interest payments, the results collectively suggest that Kenya faces significant challenges in addressing its economic challenges.

Both the debt-overhang and crowding-out theories are corroborated by the empirical results. Rising external debt service reduces fiscal capacity for development expenditure and discourages investors by signalling potential future tax risks.

Interest rates rise as a result of increased government domestic borrowing, which prevents credit from being allocated to productive privatesector activities.

The relevance of the Chepkilot findings in contemporary macroeconomic conditions is further substantiated by Kenya’s recent fiscal patterns (2023–24), which indicate that debt servicing consumes a substantial portion of revenue.

This research substantiates the notion that the servicing of external debt in Kenya has a detrimental effect on economic growth and discourages private investment.

The Chepkilot model illustrates a statistically significant inverse relationship between GDP growth and external debt interest payments during the period 1991–2015.

A more comprehensive analysis of key economic ratios and indicators, including the public debt-to-GDP ratio, debt service-to-revenue ratio, unemployment and youth unemployment rates, inflation rate vs wage growth, current account deficit-to-GDP ratio, manufacturing share of GDP, tax-to-GDP ratio vs service delivery, poverty rate, credit to the private sector as percentage of GDP, and cost of living indicators, i.e., food and fuel share of household income, when combined and critically assessed in the Kenyan context, and drawing on what is being raised by very senior individuals who have held decision-making offices in Kenya under different regimes, all indicate that the economy is under structural strain, even if headline GDP growth remains positive.

This does not mean collapse, but it indicates that Kenya’s economy is under fiscal pressure, has reduced development space, limited job absorption, and growing household stress.

The data selected for this analysis clearly indicate that policy recommendations are required to help Kenya resolve its economic challenges.

This is because Kenya is within the EAC region, and Kenya’s progress is indicative of the region’s overall progress. Moving forward, Kenya must prioritise concessional borrowing with extended maturities. Nevertheless, this must be accompanied by strengthening debt management frameworks.

Kenya should direct borrowed funds into high-return, productive sectors while reducing domestic borrowing to ease credit constraints.

It is crucial for Kenya to recognise that external borrowing can support development when managed strategically. However, Kenya’s long-term growth trajectory is undermined by excessive debt servicing.