Kenya's debt-driven economic growth model is increasingly
undermining the country's ability to create quality jobs, the World Bank has
said.
In the Kenya Country Growth and Jobs Report, the
World Bank warns that years of heavy public borrowing have crowded out private
investment and left the economy struggling to absorb hundreds of thousands of
young people entering the job market each year.
While Kenya recorded solid economic
growth averaging 4.5 per cent annually between 2001 and 2025, the model that
powered that expansion is no longer delivering enough formal jobs, productivity
gains or sustained prosperity.
The report identifies fiscal, external, productivity and
climate challenges as the four structural constraints now weighing on the
economy, but places particular emphasis on the country's debt-financed growth
model, saying it has increasingly squeezed the private sector which is the biggest
engine for job creation.
"Economic growth that also brings increasing private
investment and quality jobs is unable to be sustained and be inclusive if
constraints are not addressed," the report says, adding that the economy
has failed to generate enough higher-paying jobs for the majority of workers.
About 800,000 Kenyans join the
labour market every year, yet fewer than 100,000 secure formal jobs. This
leaves the majority to find work in low-productivity informal services and
traditional agriculture, where wages and opportunities for advancement remain
limited.
The lender says Kenya's growth over the past two decades has
been driven largely by government spending, construction and services rather
than labour-intensive sectors such as manufacturing and agribusiness that
typically create large numbers of formal jobs.
It argues that the government's ambitious infrastructure
programme and expansion of public spending were financed through sustained
borrowing, pushing public debt to 71.3 per cent of GDP by the end of 2025 while
exposing the country to growing fiscal risks.
While the investments helped support economic expansion, the
report says they also contributed to rising fiscal deficits, increasing
interest payments and reduced fiscal space, with government borrowing
increasingly crowding out private investment.
"The influx of foreign currency via government debt
supported increases in public sector consumption," the report says.
Increased domestic borrowing has made funds
scarcer for private businesses, pushing up interest rates and limiting credit
available for productive investment.
The World Bank says the consequences are now evident
in Kenya's labour market.
Highly skilled workers continue to find opportunities in public administration and specialised service industries, but those sectors have limited capacity to absorb the growing workforce.
Meanwhile,
labour-intensive industries capable of employing large numbers of low- and
middle-skilled workers have lagged behind because of weak productivity,
declining competitiveness and subdued private investment.
The report also points to weak export performance and low
foreign direct investment as further obstacles to job creation.
It says Kenya has become less competitive internationally,
remains weakly integrated into global value chains and has failed to diversify
exports sufficiently to support faster industrial expansion and employment
growth.
Although Kenya's economy reduced poverty significantly before the Covid-19 pandemic, the World Bank says many of those gains proved fragile because employment was concentrated in vulnerable sectors. Poverty rose sharply during the pandemic and remains above pre-pandemic levels despite the subsequent recovery.
The lender warns that maintaining the current growth model
risks slowing further economic expansion while leaving millions of young
Kenyans without productive employment.
Instead, it calls for a shift towards private sector-led
growth anchored on stronger exports, higher productivity and improved
competitiveness.
Among the recommended reforms are sustained fiscal consolidation to reduce debt vulnerabilities, more efficient and equitable tax collection, stronger governance and anti-corruption measures and improved public spending efficiency.
Others include removal of regulatory barriers to business, greater
competition, expanded access to affordable infrastructure and policies aimed at
attracting foreign investment.
The World Bank also urges Kenya to accelerate implementation
of trade agreements, strengthen manufacturing and agribusiness, improve skills
development and leverage climate-friendly investments to generate new
employment opportunities.
It noted that Kenya had reached a critical turning point, arguing that future prosperity will depend less on government borrowing and public expenditure and more on building a productive private sector capable of creating quality jobs for the country's fast-growing workforce.
