Critics label the idea of attaining first-world economic status as unrealistic or populist. They cite high debt-to-GDP ratio (67.4 percent), high cost of living, and corruption, as key hurdles.
Let us peel the onion. What is first-world status? What are the pathways available to Kenya to achieve it? What are the key hurdles and risks along those pathways?
First-world is annual per capita income above $14,000. From 2003 to 2025, income increased 6.07 times (from $420 to $2,550).
From current level to high income, it needs to increase 5.49 times. To compare, Costa Rica achieved high income status this year. Bulgaria, Palau, Guyana, Panama, Romania, and American Samoa have joined this league in the last five years.
Here’s Kenya’s pathway is economic growth.
Driven by recovery in services, tourism, agriculture, and ICT, Kenya’s 2025 growth is expected at around 5.5 percent, up from 4.7 percent in 2024.
The big underlying questions are the rate and type of growth [jobless vs inclusive], which sectors driver it [infrastructure vs productive], how it is financed [debt vs ordinary revenue]. And, of course, the tough policy choices necessary to calibrate outcomes along the pathway. For instance, social protection programmes (like cash transfers), are part of the remedy for non-inclusive growth.
The key hurdles are cost of living, debt service, inequality, stagnant productivity, and negative sentiment.
The rising cost of living, fiscal consolidation (taming public expenditure), and the high revenue-to-debt service ratio, are related and solvable.
Emphasised by the National Treasury, fiscal consolidation enables a slow-down in borrowing, reducing the proportion of revenue going to debt service and lower interest rates, necessary for expansion of credit to the private sector, a key ingredient of growth.
More revenue reduces reliance on debt, but does not mean punitive taxes. The key revenue mobilisation strategy is broadening the tax base.
Today, only 20 percent of those with PINs are paying taxes. The rest either don’t file at all (50 percent), or report nil income (30 percent). By using technology, simplifying processes and reducing compliance costs, KRA aims to get everyone to fulfil their civic duty.
The current budget emphasises production over consumption, to create jobs. There is a strong case for smart, not just more, spending.
Reforms should be pro-private sector, and social protection programmes better targeted. The private sector has generally welcomed macroeconomic stability but expresses concern over high interest rates.
Infrastructure is necessary, but not sufficient for economic transformation. We need to quickly sweat the infrastructure because it is debt financed. Rapid expansion of credit to private sector will enable faster growth – from the current 5-6 percent range to 7-8 percent.
Jobless growth is a key structural hurdle. It leaves us with high youth unemployment. Capitalising on this, critics say that the infrastructure-led growth is at a punitive social cost, characterised by stagnant living standards. It has left us prioritising debt servicing over social services, widening inequality. Part of the remedy lies in social protection.
Civil society argues that fragile institutions and corruption will lead to economic stagnation. Improved governance is desirable and could speed up growth. However, Costa Rica, a comparator, has achieved high income status, while still struggling with corruption.
Government interventions and favourable weather have boosted food production, keeping inflation in check. Services, ICT, and tourism remain the major growth engines. The Central Bank’s interest rate cuts will lower the cost of credit, stimulating both private sector investment and household spending.
A stable Kenyan shilling and contained inflation (around 4-5 percent) have improved investor confidence (see November PMI) and lowered debt servicing costs.
However, there are serious concerns with a widening deficit, non-inclusive growth, external factors like global capital flows, and recurring droughts. All could derail growth. Further, a lot of policy thinking remains stuck in the old fashioned formal-informal dichotomy, totally out of step with the tech-savvy population who are moving over Sh4.2 trillion per month on M-pesa.
But by far the biggest risks to sustained economic growth are stagnant productivity and negative sentiment. The first is harder to solve, because in addition to ongoing investment in human capital and infrastructure, it requires firms to innovate, switch sectors or join global value chains. How do you encourage businesses to be more innovative? Perhaps tax incentives for patents and copyrights?
Negative sentiment is partly created. Seeing it as a political tool, some politicians seem determined to spread pessimism, insisting transformation is not possible. Yet, upper middle-class status is within striking distance, and high income attainable!