A new report shows that employees in Kenya witnessed a decline in their annual earnings as a result of weak purchasing power despite a decline in inflation rate.
In its Macro Fiscal Analytic Snapshot for 2026, the Institute of Public Affairs (IPF) says real average wage earnings per employee dropped by 4pc in the private and public sector over 2022-2024 as formal employment growth also remained weak during the period.
“A decline in real wages indicates that most households are participating in low-productivity, informal work where income growth does not keep up with aggregate output,” IPF said in the report.
According to the institute, the concentration economic growth on lower productivity sectors such as agriculture and services sector has accelerate decline in household income due to the fact that they generate less formal jobs, experience low wages and weaker links to household incomes compared to manufacturing sector which has stagnated over the period.
As such, Kenya has booked a sluggish poverty reduction despite the economic growth being tipped to average 5pc in the medium term as households suffer high food inflation, climate shocks, unemployment, and government’s reduced spending on social protection due to fiscal consolidation.
Speaking during the launch of the report, Controller of Budget Margaret Nyankang’o called for review of government austerity which she aid suppress household welfare and slow economic growth on account of conditions issued by multilateral lenders such as the International Monetary Fund (IMF) in order to secure loans.
“The IMF programmes also carry significant chaos. Notably we need to look at conditionalities that come with the fund’s programmes requiring rapid fiscal tightening constraining social spending, restricting development expenditure and fomenting political resistance,” said noted.
She added, “Over reliance on IMF can weaken domestic policy ownership, making reforms harder to sustain once the programme ends.”
IPF is now recommending for a clear industrial and agro-processing strategy which will lead to creation of decent jobs and boost income among household amid fiscal pressure rising from debt repayments and interests and wages which have led to reduce spending on social safety nets.
“The issue of tight fiscal space facing the government is not in question. But what the government is not doing right now is the right conversation for actionable recommendations such as the made by the 2026 MFAS. Every shilling must be optimally put into use in critical sectors like health, education, food security, water, nutrition, social protection, and gender equality,” said Daniel Ndirangu, CEO of the IPF.
Analysis by IPF shows that over the past decade, the percentage of value added by the manufacturing sector has fallen from 10pc in 2014 to 8pc last year even as it forms base of government’s Bottom-up Economic Transformation Agenda (BETA).
The institute projects the economy to grow by 4.9pc this year and remain flat at 5pc within the next two years.
