19/07/2026
Economic Report
Why Ordinary Kenyans Feel Economic Pressure While the Government Says the Economy Is Improving
Date: July 2026
Author: Said Hirsi
Executive Summary
Kenya's economy has become the subject of two contrasting narratives. On one hand, the Government of Kenya maintains that the economy is improving, pointing to positive economic indicators such as GDP growth, lower inflation, a stronger Kenyan shilling, increased foreign exchange reserves, recovering tourism, and improved tax revenue. These indicators suggest that the country's macroeconomic fundamentals have become more stable than they were in previous years.
On the other hand, many ordinary Kenyans continue to express frustration about their economic circumstances. Households report that food remains expensive, businesses are struggling to survive, employment opportunities remain limited, and disposable incomes have declined. Many citizens feel that life has become more difficult despite the government's positive economic outlook.
These two views are not necessarily contradictory. They simply reflect different ways of measuring economic performance. Governments and international financial institutions often assess the economy using national indicators such as GDP growth, inflation, exchange rates, and fiscal stability. Ordinary citizens, however, assess the economy based on their daily lives: whether they can find employment, pay rent, afford food, expand their businesses, or save money.
This report examines the reasons behind this gap between official economic statistics and the lived experiences of ordinary Kenyans.
1. The Government's Perspective
The Government of Kenya argues that the economy is on a recovery path following several years of global and domestic economic challenges, including the COVID-19 pandemic, supply chain disruptions, drought, and international inflationary pressures.
Several macroeconomic indicators support this position.
Economic growth has remained positive, indicating that the country continues to produce more goods and services each year. Inflation has moderated compared with the highs experienced in previous years, suggesting that the pace of price increases has slowed. The Kenyan shilling has strengthened against major international currencies after a period of significant depreciation, helping to stabilize import costs and reduce pressure on foreign debt repayments.
Foreign exchange reserves have also improved, strengthening Kenya's ability to finance imports and meet external financial obligations. Tourism has continued to recover, bringing additional foreign exchange into the economy, while exports have shown resilience in several sectors. Government revenue has increased through improved tax collection, supporting public expenditure and debt management.
From a macroeconomic perspective, these developments indicate a more stable economy with improved investor confidence and stronger financial fundamentals.
However, national economic indicators do not automatically translate into improved household welfare.
2. Why Ordinary Kenyans Continue to Feel Economic Pressure
2.1 High Cost of Living
The most common concern among households is the high cost of living.
Although inflation has declined, the prices of many essential goods and services remain considerably higher than they were only a few years ago. Lower inflation means that prices are increasing more slowly; it does not mean that prices have fallen.
Families continue to spend a significant portion of their income on food, housing, transport, education, healthcare, electricity, water, and cooking fuel. For households whose incomes have not increased at the same pace as prices, everyday life has become more financially demanding.
As a result, many Kenyans judge the economy based on the prices they pay every day rather than national inflation statistics.
2.2 Heavy Tax Burden
Taxation has become another major concern for households and businesses.
Over recent years, various tax measures have increased the cost of goods and services either directly or indirectly. Businesses facing higher taxes often pass these costs on to consumers through higher prices.
Households therefore experience reduced disposable income because a larger share of their earnings is spent on taxes or on goods whose prices have increased due to taxation.
While stronger tax collection improves government finances and supports public investment, it may simultaneously reduce consumer spending and increase financial pressure on families.
2.3 Kenya's Labour Market Is Dominated by Informal Employment
One of Kenya's most important economic characteristics is the dominance of the informal sector.
According to the Kenya National Bureau of Statistics (KNBS), approximately 84% of employed Kenyans work in the informal economy, while only a relatively small proportion are employed in the formal sector.
Informal employment often provides:
• Low and unstable income.
• Little job security.
• Limited legal protection.
• Few employment benefits.
• Limited access to pensions and health insurance.
Because most Kenyans depend on informal work, improvements in national economic performance do not immediately improve household incomes.
Even when new jobs are created, they are often informal jobs with relatively low earnings.
2.4 Slow Growth in Household Income
For many workers, salaries have remained largely unchanged while living expenses have increased substantially.
This means that although nominal incomes may remain constant, the amount of goods and services those incomes can purchase has declined.
Households therefore experience declining living standards despite remaining employed.
This explains why economic growth alone does not necessarily improve public perception of the economy.
2.5 Rising Business Closures
Many business owners across Kenya report increasing financial pressure.
Although comprehensive national statistics on business closures remain limited, reports from business associations, local chambers of commerce, and entrepreneurs suggest that many micro, small, and medium-sized enterprises (MSMEs) are struggling to survive.
Several factors contribute to these challenges, including:
• Reduced consumer spending.
• Higher operating costs.
• Increased taxation.
• Expensive electricity.
• Rising transport costs.
• Higher commercial rents.
• Limited access to affordable financing.
Business closures affect not only entrepreneurs but also employees, suppliers, landlords, transport operators, and local communities, creating wider economic consequences.
2.6 Unequal Distribution of Economic Growth
Economic recovery has not benefited every sector equally.
Several industries have continued to report strong financial performance.
These include:
• Commercial banking.
• Telecommunications.
• Some multinational corporations.
• Export-oriented businesses.
• Certain financial service providers.
In contrast, many sectors that depend primarily on domestic consumer spending continue to experience weaker demand.
These include:
• Small retail shops.
• Wholesalers.
• Restaurants.
• Small manufacturers.
• Informal traders.
• Family-owned businesses.
This uneven distribution of growth contributes to the perception that economic recovery mainly benefits larger corporations while smaller businesses continue to struggle.
2.7 Businesses Are Surviving but Not Growing
Remaining operational does not necessarily indicate business success.
Many businesses continue to operate despite experiencing:
• Falling sales.
• Lower profit margins.
• Cash-flow shortages.
• Delayed customer payments.
• Reduced inventories.
• Limited investment.
• Hiring freezes.
Owners often use personal savings or short-term borrowing simply to keep businesses operating.
Such businesses may appear stable from the outside but remain financially vulnerable.
2.8 High Cost of Credit
The cost of borrowing has remained relatively high for many businesses and households.
Higher lending rates discourage investment because businesses postpone expansion plans while households delay major purchases such as homes, vehicles, or equipment.
Limited access to affordable credit also affects small businesses that rely on bank financing for working capital and expansion.
This slows business growth and employment creation.
2.9 Reduced Purchasing Power
Purchasing power is perhaps the most important factor influencing public opinion.
Households evaluate the economy by asking a simple question:
"Can my salary buy more than it did before?"
For many families, the answer is no.
Although salaries may have remained unchanged, prices have increased considerably over recent years.
Consequently, households can afford fewer goods and services than before, creating the widespread perception that people are becoming poorer.
3. The Difference Between Macroeconomics and Household Economics
The difference between government assessments and public perceptions largely reflects the distinction between macroeconomics and household economics.
Macroeconomics measures the overall performance of the national economy using indicators such as GDP growth, inflation, exchange rates, government revenue, public debt, foreign exchange reserves, and investment.
Household economics focuses on the financial well-being of individual families and small businesses. It considers employment opportunities, wages, business profits, food prices, rent, transport costs, healthcare expenses, education costs, and savings.
A country may therefore experience improving macroeconomic indicators while households continue to face financial hardship.
This situation is not unique to Kenya and has occurred in many developing and developed economies.
4. The Two Economies of Kenya
Kenya increasingly appears to operate as two interconnected but very different economies.
The first economy consists of large corporations, banks, telecommunications companies, exporters, and international investors. These institutions often benefit more quickly from exchange rate stability, lower inflation, improved financial markets, and increased investor confidence.
The second economy consists of households, informal workers, farmers, self-employed individuals, and micro, small, and medium-sized enterprises.
These groups depend primarily on local consumer demand, affordable credit, stable employment, and rising household incomes.
When the first economy performs well but the second continues to struggle, national economic statistics improve while many citizens continue to experience financial pressure.
This helps explain why official economic reports and public opinion sometimes appear to contradict one another.
Conclusion
Kenya's current economic situation demonstrates that national economic performance and household economic experience are not always the same.
The Government of Kenya is justified in highlighting improvements in macroeconomic indicators such as GDP growth, lower inflation, exchange rate stability, and stronger foreign exchange reserves. These indicators are important because they strengthen the country's economic resilience and improve investor confidence.
At the same time, the concerns expressed by ordinary Kenyans are also supported by economic realities. High living costs, slow income growth, heavy taxation, business difficulties, expensive credit, and declining purchasing power continue to place significant financial pressure on households and small businesses.
The fact that most Kenyans earn their livelihoods in the informal sector further delays the transmission of macroeconomic improvements into everyday living standards.
Ultimately, economic success should not be measured solely by national statistics. Sustainable and inclusive growth is achieved when improvements in macroeconomic performance are reflected in better employment opportunities, stronger small businesses, rising real incomes, and improved household welfare.
Only when these benefits are widely shared will the majority of Kenyans feel that the economy is truly improving.
Author’s Commentary
In my opinion, Kenya’s economic policies have placed greater emphasis on macroeconomic stability than on microeconomic welfare. The government’s efforts to strengthen GDP growth, stabilize the exchange rate, increase foreign exchange reserves, improve fiscal discipline, and enhance investor confidence are important achievements. However, these improvements have not been accompanied by sufficient gains in the everyday economic conditions of many households and small businesses.
Because most Kenyans earn their livelihoods in the informal sector or through micro, small, and medium-sized enterprises (MSMEs), policies that improve national economic indicators may not immediately improve living standards. Many households continue to face high living costs, limited employment opportunities, declining purchasing power, and pressure on small businesses.
In my view, future economic policy should seek a better balance between macroeconomic objectives and microeconomic outcomes. Economic success should be measured not only by stronger national indicators but also by whether households experience rising real incomes, sustainable employment, profitable businesses, and improved living standards.
— Said Hirsi
References
African Development Bank. (2025). African Economic Outlook 2025. Abidjan, Côte d’Ivoire: African Development Bank Group.
Central Bank of Kenya. (2025). Monetary Policy Statement. Nairobi, Kenya: Central Bank of Kenya.
International Monetary Fund. (2025). Kenya: 2025 Article IV Consultation Press Release; Staff Report; and Statement by the Executive Director for Kenya (IMF Country Report). Washington, DC: International Monetary Fund.
Kenya National Bureau of Statistics. (2025). Economic Survey 2025. Nairobi, Kenya: Kenya National Bureau of Statistics.
National Treasury and Economic Planning. (2025). Budget Policy Statement 2025. Nairobi, Kenya: Government of Kenya.
World Bank. (2025). Kenya Economic Update: Transforming Economic Growth into Broad-Based Prosperity. Washington, DC: World Bank.
