Kenya’s economic growth is no longer lifting people out of poverty as effectively as it once did, raising fresh concerns about inequality and missed development targets.
A new report by the Kenya Institute for Public Policy Research and Analysis, the Kenya National Bureau of Statistics, the World Bank, UNICEF and researchers from the University of Nairobi shows that the pace of poverty reduction has slowed significantly despite continued economic expansion.
The study finds that poverty has become less responsive to growth, meaning fewer Kenyans are escaping hardship even when the economy grows.
“Before the COVID-19 pandemic, Kenya had made gradual gains in reducing poverty. However, the economic shock triggered by the crisis reversed much of that progress, pushing poverty levels back above pre-pandemic levels and exposing underlying structural weaknesses,” the report states.
While inequality has declined over time, the gains have not been widely shared across the population. The Gini coefficient dropped from 47 per cent in 2005/06 to 38.4 per cent in 2022, but this has not translated into broad improvements in living standards.
A major challenge lies in the labour market, where most jobs remain informal, low-paying and unproductive. Although labour force participation is high, formal job creation has lagged behind population growth, limiting opportunities for upward mobility.
Unemployment
According to data from the Kenya National Bureau of Statistics, unemployment has more than doubled from 2.6 per cent in 2014 to 5.6 per cent in 2023, with young people and women bearing the brunt.
The private sector is also feeling the pressure, with the Federation of Kenya Employers reporting a 12 per cent drop in employment in 2025, particularly in key sectors such as manufacturing, trade, hospitality, transport and financial services.
“Increased statutory deductions have reduced employees’ take-home pay while raising employers’ costs, particularly where employers are required to match contributions,” said Jacqueline Mugo, noting that many firms are restructuring or freezing hiring.
Poverty remains concentrated in rural areas, especially in Arid and Semi-Arid Lands, where communities face climate shocks, poor infrastructure and limited access to essential services.
Women and children are among the most affected, with female-headed households facing higher levels of economic vulnerability due to limited income opportunities and the burden of unpaid care work.
“Women are more likely to experience poverty and economic vulnerability due to unequal access to income-generating opportunities and the disproportionate burden of unpaid care work,” the report notes.
Children continue to face high levels of multidimensional poverty, lacking access to quality education, healthcare and adequate nutrition.
The report also examines the role of fiscal policy and finds that Kenya’s tax and spending system has a limited impact on reducing inequality and may, in some cases, increase poverty.
Indirect taxes such as VAT place a heavier burden on low-income households, while direct taxes like personal income tax are more progressive but not strong enough to offset that impact.
Government social protection programmes, including cash transfers, provide important support, but the report highlights that in-kind transfers, especially in education, have a greater effect in reducing inequality.
Without these services, most households would be net contributors to the fiscal system, paying more in taxes than they receive in benefits.
At the same time, rising public debt, increasing interest payments, and slower economic growth are limiting the government’s ability to expand social spending.
Public resistance to higher taxes has also grown, particularly after the 2024 Gen Z protests that forced the withdrawal of the Finance Bill.
National Treasury Cabinet Secretary John Mbadi said the findings underscore the need for urgent reforms.
“Economic progress over the past two decades has brought about significant gains, yet persistent poverty, widening inequality, evolving demographic challenges, and increased fiscal pressures call for bold, evidence-driven policy choices,” he said.
“The social contract demands that public investments not only fuel growth, but also tangibly improve the welfare of all Kenyans, especially the most vulnerable.”
Economic Planning Principal Secretary Bonface Makokha said the report offers practical steps to strengthen the impact of fiscal policy, including reducing reliance on indirect taxes, expanding social protection and promoting formal job creation.
The Treasury has also proposed raising the PAYE tax-free threshold to Ksh 30,000 from Ksh 24,000 to ease the burden on low-income earners.
Kenya’s long-term plan, Kenya Vision 2030, places poverty reduction at the centre of development, but the report warns that without major policy shifts, the country risks falling short of its targets.
Experts say closing the gap between growth and poverty reduction will require a more inclusive approach that focuses on job creation, targeted support for vulnerable groups and policies that address structural inequalities.
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