Executive Summary

Kenya's fiscal health is under significant scrutiny, particularly following the economic disruptions caused by the COVID-19 pandemic. The country's financial stability is characterized by a high public debt level, budget deficits, and ongoing efforts to enhance revenue mobilization.
A) Key Indicators
•   Public Debt: As of June 2024, Kenya's total public debt reached Ksh 10.6 trillion (approximately $82.9 billion), with a debt-to-GDP ratio of 70.0%. This reflects a slight increase from the previous year, highlighting ongoing concerns regarding fiscal management and sustainability.
•    Budget Deficit: The projected budget deficit for the fiscal year 2024/2025 is expected to decrease to 3.3% of GDP, down from 5.7% in 2023/2024, as part of the government's strategy to improve fiscal sustainability.
B) Revenue Mobilization Strategies
To achieve a revenue-to-GDP ratio target of 19.2%, the Kenyan government is focusing on:
•    Digital Taxation Initiatives: Implementation of new tax laws aimed at enhancing revenue collection.
•    Inclusion of the Informal Sector: Efforts to integrate the informal sector into the tax system, which employs over 70% of the workforce.
C) Role of the Service Sector
The service sector is pivotal to Kenya's economy, contributing approximately 55.47% of GDP and serving as a major source of employment and government revenue. Key contributions include:
•    Economic Development: The sector has been instrumental in post-pandemic recovery.
•    Revenue Generation: Despite its significance, tax collection remains below targets, increasing reliance on borrowing.

Challenges
The service sector faces several challenges that could impact fiscal health:
•    Service Quality Variability: Inconsistent service quality can erode consumer trust.
•    Economic Volatility: The sector is sensitive to external economic conditions.
•    Debt Servicing Costs: Rising public debt levels divert funds away from essential public investments.

Introduction and Background

Fiscal health refers to a government's capacity to balance its available resources and financial commitments so that it can meet its current and future responsibilities without experiencing financial pressure. 
This study is significant because the service sector is a key component of Kenya's economy and fiscal stability; resolving its issues through smart investments and policy changes will be essential to guaranteeing stability and sustainable economic growth in the years to come.

Kenya's economy has grown and remained resilient in recent years thanks to a number of sectors and well-thought-out government initiatives. Key observations regarding the state of the economy now are as follows: 

a) Performance and Economic Growth 
Financial Well-Being As part of the government's plan to increase fiscal sustainability, a 5.7% budget deficit is for the fiscal year 2023–2024, which is expected to narrow to below 3.5% in the coming year.
b) Sectoral Contributions Services Sector
Driven by public investment and household consumption, this sector has been a key contributor to growth, making up a sizeable amount of GDP.

Government Initiatives 
Vision 2030: Through a number of infrastructure projects and economic changes, this long-term development plan seeks to make Kenya a middle-income nation by 2030.

The Agenda of the "Big Four": This agenda was started with the goal of promoting inclusive growth and lowering poverty by addressing important issues like manufacturing, affordable housing, universal health coverage, and food security.  

Data and Analysis  

Data Source:  Trading Economics

Data source:  Annual Public Debt Management Report 2023/2024

Data Source:  Cytoon

Key Findings

The method used by the government to raise money through digital taxation initiatives: adoption of new tax legislation with the goal of increasing revenue collection in order to Reaching a revenue-to-GDP ratio goal could have an effect on MGA Group as well as all other service sector firms. In addition to being extremely important, this business will ultimately force these service sectors to cut back on funding for technology, innovation, and research.

Recommendations

1) Encourage Innovation in the Service Industry  
Support for entrepreneurs: By offering grants or tax breaks, establish a climate that is conducive to the growth of entrepreneurs in the technology and service sectors. Innovation and the development of jobs may result from this.

2) Implementing service quality standardization initiatives across sectors can enhance customer confidence and improve service quality. Regular training programs can also facilitate maintaining these standards.

3) Regularly evaluate economic indicators like inflation, unemployment rates, and public debt levels for strategic planning and policy changes. Utilize data analytics for more responsive policies.

References

Annual Public Debt Management Report 2023 2024 from the National Treasury and Economic Planning.pdf.  http://www.parliament.go.ke/sites/default/files/202410/Annual%20Public%20Debt%20Management%20Report%202023%202024%20from%20the%20National%20Treasury%20and%20Economic%20Planning.pdf

Kenya’s Public Debt Review 2023: Is Kenya’s Public Debt Level Sustainable?  https://cytonn.com/topicals/kenyas-public-debt-5

KPMG Advisory Services Limited. (2024). Budget Brief 2024. https://assets.kpmg.com/content/dam/kpmg/ke/pdf/tax/2024/Kenya%202024-2025%20Budget%20Brief.pdf

Statista. (2024, September 26). Share of economic sectors in the GDP in Kenya 2023. https://www.statista.com/statistics/451143/share-of-economic-sectors-in-the-gdp-in-kenya/

The service sector-led growth in Kenya. https://erepository.uonbi.ac.ke/bitstream/handle/11295/163418/Mwarange_The Service Sector-led Growth in Kenya.pdf?isAllowed=y&sequence=1

TRADING ECONOMICS. Kenya Government Debt. https://tradingeconomics.com/kenya/government-debt