The International Monetary Fund (IMF), has released a new forecast, indicating that Kenya is poised to become the fourth-largest economy in sub-Saharan Africa, outpacing Angola.
Fintech Telex understands that this development would place Kenya behind South Africa, Nigeria, and Ethiopia.
The IMF further forecasts that Kenya will retain this position until the conclusion of 2029.
In 2022, Kenya’s GDP stood at approximately $108.9 billion (Ksh15.14 trillion at current exchange rates), slightly down from $113.7 billion (Ksh13.37 trillion at the 2022 exchange rate).
Meanwhile, Ethiopia’s economy, once smaller than Kenya’s in 2020, has surged ahead. Last year (2023), Ethiopia’s GDP reached an estimated $159.74 billion (Sh21.165 trillion), widening its economic lead over Kenya.
Ethiopia’s Economy
Despite concerns about the accuracy of its GDP figures, Ethiopia is expected to surpass Nigeria’s second-place position in the economy for the next three years. The country has recently emerged from a devastating two-year civil war and has faced challenges with meeting its debt obligations.
READ MORE: X Risks Fines As Elon Musk Insists On Violating Court Order
Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, an investment management company, described the Ethiopian exchange rate as a “fantasy exchange rate.”
“Ethiopia is maintaining a hugely overvalued exchange rate which is not supported by reality,” said Robertson in an email response.
According to the FIM Partners FX model, a realistic exchange rate for the Ethiopian Birr is about 97 against the dollar, while the official rate is 57.
Coming from a GDP of $118.97 billion, the IMF estimates the Ethiopian economy to have grown by 7.2 percent last year, the fastest GDP growth in the sub-Sahara.
Ethiopia achieved the fastest GDP growth in sub-Saharan Africa in 2023, with a rate of 7.2%, while Kenya’s growth was more restrained at 5.5%, affected by drought and global financial market conditions related to the Ukraine conflict. The official GDP figures for Kenya in 2023 are expected to be disclosed soon.
Despite its economic challenges, Ethiopia’s GDP is forecast to remain higher than Kenya’s. Some experts question the IMF’s projections, especially regarding Ethiopia’s GDP calculations.
As of the end of Monday, 56.9 Ethiopian Birr fetched one dollar while 132.5 Kenyan shillings bought a unit of the US currency.
To get an estimate of GDP in dollar terms, Robertson noted the IMF uses the official rate, which then puts the size of Ethiopia’s GDP in 2023 at around $160 billion against Kenya’s $109 billion.
“But at a realistic exchange rate, [Ethiopia’s] GDP was probably $90 billion. Kenya’s GDP by comparison was $109 billion in 2023. So, if you use the official figure, you’d say Ethiopia’s economy was about 50 percent bigger than Kenya – but in reality, Kenya’s economy is bigger.”
Using official exchange rates, the IMF estimates Ethiopia’s 2023 GDP at around $160 billion, compared to Kenya’s $109 billion. However, adjusting for a more realistic exchange rate, Ethiopia’s GDP could be closer to $90 billion, making Kenya’s economy relatively larger than previously thought.
The IMF defends its World Economic Outlook data, stating it’s based on information collected during their missions to member countries.
However, Ethiopia has been going through a rough patch, coming from a two-year civil war that ravaged its economy.
It became Africa’s third defaulter after it failed to make a $33 million “coupon” payment on its Eurobond. The Government has applied for debt restructuring with the G20 Common Framework (CF) in January 2021.
Ken Gichinga, an economist, reckons that although it is difficult to refute figures that can only be computed by governments such as GDP, “colloquial wisdom” contradicts the IMF numbers. “All things constant, somebody might say this country has a bigger market, and if a country has a bigger market, it should attract more business,” said Mr Gichinga.
More
Kenya’s economic outlook remains promising, while Ethiopia grapples with economic challenges, including defaulting on a $33 million Eurobond payment and seeking debt restructuring with the G20 Common Framework.
Tanzania ranks as the third-largest economy in East Africa with a 2023 GDP of $79.44 billion, followed by the DRC ($67.3 billion), and Uganda ($51.8 billion). Rwanda and Burundi had GDPs estimated at $14.02 billion and $4.2 billion, respectively.
