CEEMEA in Focus Trip Notes from Kenya — Stronger BoP and Shilling Support

Economics Research 24 July 2026 | 3:38PM BST

Trip Notes from Kenya — Stronger BoP and Shilling Support; Wide Fiscal Deficits Likely to Persist

This week (22-24 July), we organised a trip to Kenya, where we met policymakers, Ludovica Ambrosino | political analysts and local market participants. Goldman Sachs International

Our key takeaways from the trip were as follows: Andrew Matheny | n The external outlook remains broadly resilient, underpinned by solid reserves Goldman Sachs International

(US$14.1bn, ~6 months of import cover), large FX inflows from various sources, and government-to-government oil arrangements with Saudi Arabia and the UAE, which have eased near-term Dollar demand. On net, recent news on the BoP has been positive and suggests upside risks to our US$12bn end-2026 projection, making us more confident on our baseline outlook for KES stability and less concerned about depreciation risks. n On the fiscal side, however, the deficit came in wider than expected at 6.7% of GDP in the fiscal year that just ended (FY2025/26). This was significantly larger than our estimate of Kenya’s debt-stabilising deficit (4-5% of GDP), and we remain cautious on the durability of revenue-base gains, off-budget securitisation risks, and likely pre-election slippage. n On financing, the FY2026/27 programme is heavily tilted domestically (~KES1.0trn net domestic), complemented by a substantial ~US$4bn external pipeline spanning concessional (World Bank, AfDB) and commercial sources (Samurai, Panda, Eurobond), with total net external financing over the next 6-12 months estimated at US$2.5–2.9bn. n On the political front, a fragmented opposition increases the likelihood that President Ruto will be re-elected in August 2027, though coalition dynamics into February/March 2027, when parties’ membership lists are presented, and their ability to coalesce behind a unifying opposition candidate remain the key swing factor. n On monetary policy, the CBK sees inflation staying within the upper band of the target, with the current stance widely viewed as appropriate given subdued private credit growth and an economy running below potential.

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Trip Notes from Kenya — Stronger BoP and Shilling Support; Wide Fiscal Deficits Likely to Persist

n We remain broadly confident in Kenya’s ability to absorb external shocks, as reserves are at US$14.1bn, or 6 months of import cover, and the government-to-government agreements with Saudi Arabia and UAE have delayed Dollar demand from Kenyan oil-importing companies, keeping the currency stable. The effects of the larger oil import bill will therefore show up immediately in the trade data, but will weigh on the BoP (through the financial account) with around a 2-quarter lag thanks to these bilateral arrangements. Further, travel receipts and tea exports are steady, supporting export revenues. Near-term pressure on FX reserves is to the upside given large privatization and M&A inflows. n The CBK reiterated that the Kenyan Shilling is a flexible currency, with no intervention, and it expects FX reserves to stay around US$14bn for the year — where foreign financing flows should offset higher oil-price pressure. n Risks to the external side remain from the Iran war, as two-thirds of total oil imports come from the Gulf, and around 8% of Kenyan exports go to the region; therefore, lower Gulf demand could put further pressure on the current account. Remittances are falling, in line with our expectations, mostly driven by the negative income shock to Kenyan migrants in the GCC, as well as some administrative immigration protocols imposed by the Gulf.

n The fiscal deficit for 2025/26 came in wider than expected, at 6.7% of GDP, owing to revenue shortfalls, compounded by drought, and wage-bill pressures. n For FY2026/27, revenue measures are limited to a reduction of tax exemptions and payroll harmonisation. The authorities seem more focused on broadening the tax base rather than raising the tax rate, through digitalisation. While…