Kenya's public debt remains a significant concern, with interest payments consuming about one-third of tax revenue. The World Bank emphasizes the need for reforms to bolster fiscal sustainability and promote inclusive growth to counteract a slowing economy and weak labor market.
The latest World Bank Kenya Economic Update highlights some improvements in macroeconomic indicators since 2024, such as declining inflation, a stabilized exchange rate, and stronger international reserves. However, economic growth has decelerated. Real GDP is expected to gradually increase from 4.5 percent in 2025 to around 5.0 percent in 2026–27.
The slowdown is attributed to challenges like floods, high interest rates, and subdued business sentiment following protests and reduced development spending. Despite resilient agriculture, strong remittance inflows, and a rebound in services, growth was hindered by weak industrial activity and sluggish private consumption.
Kenya’s current account deficit narrowed to 3.1% of GDP by February 2025 due to rebounding exports—especially agricultural goods—and strong remittance growth of 19%. Nevertheless, tradable sectors slightly underperformed with declines in tea and manufactured exports as well as weakened services exports due to falling travel receipts.
“Despite improvements in Kenya’s macroeconomic indicators, the country continues to face structural challenges, including insufficient job creation and low wages, especially among the youth,” stated Qimiao Fan from the World Bank.
Revenue collections have been lacking efficiency; hence more effective revenue and expenditure policies are necessary alongside faster arrears verification according to Kenya’s debt strategy.
The economic outlook presents several risks such as fiscal challenges and external shocks but also potential upsides through accelerated reforms that could enhance investor confidence.
A special focus on poverty reveals that while Kenya's fiscal system reduces inequality somewhat effectively, increasing transfers' coverage could alleviate tax burdens on poorer households. “Fiscal policy is more than a budgetary tool—it’s a lever for equity," said Naomi Mathenge from the World Bank Kenya.
Expanding cash transfers could yield substantial benefits if fiscal space allows for better-targeted support for the poor. Well-targeted VAT reforms paired with social protection measures can significantly improve Kenya's fiscal capacity. Investment in health and education remains crucial for long-term gains when combined with inclusive growth strategies aimed at reducing poverty.