Country Summary

Macroeconomic performance and outlook

Real GDP grew by an estimated 5.9% in 2019, driven by household consumption and investment on the demand side and services on the supply side (such as public administration, information technology, finance and insurance, and transport and storage). GDP was down from 6.5% in 2018, caused mainly by unfavorable weather and reduced government investment.

At 5.2%, inflation remains within the central bank’s 5 ± 2.5% target band. The exchange rate remained stable due to the narrowing current account deficit, from 5.0% of GDP in 2018 to 4.9% in 2019 thanks to increased transfers. Foreign exchange reserves rose from $9 billion in 2018 to $9.4 billion at the end of August 2019, equivalent to 6 months of imports, or more than the East African Community convergence criterion of 4.5 months.

The fiscal deficit is estimated at 7.5% of GDP in 2019, down from 8.8% in 2017, thanks to ongoing fiscal consolidation and greater domestic resources mobili- zation. Public debt rose to 58% of GDP in 2019, up from 41% in 2013, and became more nonconcessional (67%) than concessional (33%). More of it is held exter- nally (16% of GDP) than domestically (9% of GDP), but the domestic share is increasing. The debt cre- ates risks for refinancing, cost escalation, and foreign exchange. Because of expected liquidity challenges, the IMF elevated Kenya’s debt stress rating from low to moderate in 2018.

Kenya’s economic growth has not been inclusive enough: poverty fell to 36% in 2015/16 from 46% in 2005/6. Unemployment fell marginally from 9.5% in 2014 to 9.3% in 2018. The bottom income quintile receives only 4% of income.

Tailwinds and headwinds

Real GDP is projected to grow 6% in 2020 and 6.2% in 2021. Macroeconomic stability is expected to continue. Inflation, around 5% in 2020 and 2021, is expected to remain within the target range, and the fiscal deficit will narrow in 2020 and 2021. The positive outlook mainly reflects favorable weather, increased crude oil pro- duction and exports, continuing foreign direct invest- ment, the benefits of the African Continental Free Trade Agreement, and the government’s commitment to the Big Four Agenda aimed at industrialization in health, housing, agriculture, and manufacturing.

The Agenda plans to enhance food security and transform agriculture from subsistence oriented and rain dependent to market oriented, using special eco- nomic zones as a manufacturing base to expand exports and boost import substitution. The envisioned structural change depends on quickly transitioning to growth led by the private sector, not the public sector. Reforms to make the investment climate conducive to domestic and foreign investment should extend to the credit market, particularly to enhance access for small and medium enterprises.

Kenya’s economic transformation faces challenges in manufacturing, agriculture, the labor market, and macroeconomic stability. Manufacturing’s share in GDP has remained at 9% for more than a decade, and man- ufacturing value added is only 5% of GDP. Agriculture accounted for 52% of GDP, 56% of employment, and 65% of foreign exchange earnings in 2018. The 2018/19 drought slowed economic growth and reduced food security.

Informality and unemployment remain high. Four- fifths of workers are in the informal economy, and 9.3% of the workforce are unemployed. Investment has been low in sectors with greater capacity to absorb labor. Given the youth bulge, the supply of labor is large, but skills and entrepreneurial activity are limited.

Health sector preparedness

Kenya established a National Emergency Response Com- mittee to manage the pandemic. The 2019 Global Health Security Index measuring country preparedness to cope with infectious diseases ranked Kenya 55 globally and 2 in Africa, after South Africa. Kenya scored below average on three of the six indicators—rapid response, health sys- tems, and risk environment—suggesting the need to prior- itize these areas to fight infectious diseases.

Policy responses

The government has introduced measures (including the 8-point economic stimulus program) to mitigate the health, social and economic impact of the pandemic and stimu- late growth. On the fiscal policy front, the government is rechanneling resources to the health sector to hire addi- tional health workers, increase the bed capacity of public hospitals, and enhance research capacity of medical health facilities. It is improving the cash flow of businesses by settling outstanding value added tax (VAT) refunds and pending bills, reducing corporate and turnover tax, offering soft loans to the tourism sector, and injecting seed capi- tal for SME credit guarantee schemes. It is protecting the disposable income of households by revamping existing safety net program and introducing cuts in the income tax and VAT rates. As part of its eight-point economic stimulus program, it is investing in public works, agriculture, manu- facturing, and services. The fiscal stimulus is expected to cost the government KES 173 billion ($1.63 billion).

On the monetary and financial policy front, the emer- gency response consisted of a cut in the policy rate from 8.25% to 7% and reduction in the cash reserve ratio from 5.25% to 4.25% to free KES 35.2 billion to address difficult credit market conditions for affected businesses.

Source: African Economic Outlook 2020

Fixed Income


Kenya’s domestic debt market is growing to be a vibrant as deepening continues to be a priority to the Government . Increased reliance on domestic debt helps mitigate government exposure to foreign currency risk. Issuance of long dated instruments reduce the domestic rollover risk and create liquidity in the government securities market thus providing consistent pricing references for other risk assets within the Kenyan economy.

The domestic debt market investor base is diversified but commercial banks are the major players. Through the market reforms, the government is committed to introducing various products and tenors that takes care of the investor preferences for both ends of the market.

  • The National Treasury introduced a retail based product M-Akiba an initiative aimed at providing an avenue for investing in Treasury Bonds through mobile phone platforms.
  • The government is also in the process of segmenting the securities market into retail and wholesale in order to develop a strong base for primary dealership and aid in the pricing of financial instruments as well as improve efficiency.
  • The secondary market in Kenya continues to develop. Trading of Government bonds has increased significantly since fiscal year. Most activities concentrated on the medium to long term securities with the bulk being the 5 to 10 years maturities. The turnover was Ksh 366,923 million in FY/2017compared to Ksh 311,660 million in FY2016 [Source:2018 MTDS document]
  • Using the World Bank's Country Policy and Institutional Assessment (CPIA), Kenya is rated a strong policy performer. [Source:2018 MTDS document]

  • Kenya is 7th in the ABMDI 2017 Ranking Report.

Issuance strategy 

The 2018 Medium-Term Debt Management Strategy (MTDS) has considered the current macro-economic environment both at the local and international scene and the related vulnerabilities. The recommended strategy is one that seeks to maximize the concessional debt already contracted, contract more semi concessional external debt with the issuance of medium to long term domestic debt. According to the MTDS, The external debt comprising 57 per cent of gross borrowing while 43 per cent comprise of the domestic borrowing. On the external debt, concessional is proposed at 23 per cent, semi-concessional 12 per cent and commercial 22 per cent . T-bonds will be the main source of net domestic financing, while T-bills will primarily be an instrument to manage government cash position. 

Even though the domestic debt market investor base is diversified, commercial banks are the major players. Through the market reforms, the government is committed to introducing various products and tenors that takes care of the investor preferences for both ends of the market.

Benchmark issues 

As of 2007, the Government of Kenya began to outline the appropriate maturity distribution. It created benchmarks with large issue amounts. There are five benchmark maturities for government securities in local currency (KES): 2-5-10-15 and 20 years. 

Yield curve 

The government securities yield curve extended to 30 years with five benchmark points along the curve (2-5-10-15 and 20 years). 

Yield curve calculation models 

Building a benchmark yield curve is a consideration for issuance as it provides a pricing reference for other financial market products. This is supported by the issuance of benchmark bonds by auction, or by tap sales and reopening.

The yield curve is generated from actual traded yields of benchmark bonds (excluding trades on infrastructure bonds, sell/buy-back transactions and benchmark bonds lower than USD 500,000 or KES 50M per transaction). However, for the tenors where no actual trading took place, the indicative yields obtained from bond market traders are used. The estimation for the yield curve is simple trend with logarithmic fit. The calculation method used for Kenya’s benchmark curve is the Nelson-Siegel method. 

Interpolation methods 

Where there is no traded yield for a certain point along the yield curve, linear interpolation is used to generate an appropriate yield. 

Yield curve managed by 

Kenya’s yield curve is generated by the Nairobi Securities Exchange on a weekly basis.  However, different market players also generate independent yield curves.

Display platform 

The yield curve can also be accessed from the Nairobi Securities Exchange website and the Bloomberg platform.

Challenges in building an efficient yield curve 

  • Market fragmentation: implementation of the benchmark bond program is at an advanced stage to reduce the number of small illiquid outstanding bonds. 
  • Narrow investor base: reforms  are needed to diversify the investor base . 
  • Lack of transparency in pricing: there are reforms to improve price discovery and promote a firm two-way quote system.

Guide to Buying Bonds

Procedures for market participation

To participate in the primary market, investors must first open a CDS account  with the Central Bank of Kenya (CBK). Investors must then submit an application form to the Central Bank or to one of its branches; forms for T-bills and T-bonds are available on the Central Bank website.

Investors may place their application either as competitive or non-competitive (average) bids. The minimum amount required to invest in a Treasury bond is KES 50,000 and to invest in a Treasury bill is KES 100,000. There is no maximum amount an investor can invest in a competitive bid, however a non –competitive bid has a limit of Kes 20 million per CDS account .

Further details on the investment process for T-bills are available here and for T-bonds, click here

Settlement Cycle

Settlement ranges from T+3 to T+0.


Bonds with maturities ranging between 2 and 9 years bear a withholding tax rate of 15%. Bonds with maturities of 10 years or more bear a withholding tax rate of 10%. There is no capital gains tax.

Kenya has signed double taxation agreements with the following countries: Zambia, Norway, Denmark, Sweden, U.K, Germany, Canada and India. 

Market restrictions

Openness to International investors 

The Kenya Investment Authority, KenInvest, is the Authority in charge of developing local and foreign investment in the country. Foreign participation in the capital markets is regulated by the Capital Markets (Foreign Investors) Regulations, 2002. This regulation currently addresses only equity investments.

Kenya is making efforts to harmonize regional tax regimes with Uganda and Tanzania. The East Africa Community (EAC) is also looking at removing any barriers and at creating a common stock exchange.

Capital controls 

The Exchange Control Act was abolished in 1995 allowing free remittance of capital, profits and income after tax. Investors are free to repatriate the entirety of their profits, after they have fulfilled their tax duties with respect to the Kenyan Revenue Authority (KRA).

Profit repatriation

There are no restrictions on FX repatriation or profit repatriation. A Certificate of Approved Enterprise permits foreign investors to repatriate initial capital investments and remit future dividends.

Credit rating

Rating Agency Current rating Outlook
Moody's NR No outlook
Fitch B+ Stable
Standard and Poor's B+ Stable

List of Primary Dealers


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