Kenya's economy is expected to grow at an average rate of 4.9% between 2025 and 2027, according to the latest Kenya Economic Update released by the World Bank. This projection marks an increase from previous estimates, reflecting ongoing economic resilience. However, fiscal challenges remain a concern as the deficit for fiscal year 2024/25 has widened to 5.9% of GDP, surpassing the original target of 4.3%. The shortfall is attributed mainly to lower-than-expected revenues and increasingly inflexible spending patterns.
The report notes that several macroeconomic indicators are performing well. Inflation remains within target levels, the exchange rate is stable, and foreign exchange reserves have reached record highs. Private sector credit has also improved, growing by 5% year-on-year as of September 2025, aided by lower lending rates and supportive monetary policy. In the first two quarters of 2025, GDP expanded by 4.9% and 5.0%, respectively, with growth driven in part by a recovery in the construction sector.
“Economic growth momentum could be further sustained by addressing key barriers to competition, which would also lead to more and better paying jobs, and lower prices to consumers,” said Qimiao Fan, World Bank Division Director for Kenya, Rwanda, Somalia, and Uganda.
Despite these positive trends, Kenya faces elevated fiscal pressures. Public debt increased during the last fiscal year and now stands at 68.8% of GDP. The country continues to face a high risk of debt distress, highlighting the need for credible measures aimed at fiscal consolidation. There has been a notable shift toward domestic borrowing through short-term treasury bills—a move that increases rollover risks.
“Many key macroeconomic indicators continue to show strength; however, the fiscal outlook remains subject to downside risks that could threaten sustained and inclusive economic growth,” said Jorge Tudela Pye, World Bank Country Economist for Kenya.
The labor market shows persistent weaknesses: formal employment accounts for only about 15% of total jobs while real wages have declined—signs of structural issues affecting productivity growth and job creation.
The World Bank’s report emphasizes that procompetitive reforms are urgently needed if Kenya aims to boost productivity and create more decent jobs. Kenya currently holds a Product Market Regulation score of 2.92—the highest among its peers—suggesting there is considerable scope for easing regulatory constraints on competition.
Recommended interventions include limiting direct government transfers to commercial state-owned enterprises (SOEs) and adopting performance-based transfers for public service obligations in order to foster fairer competition between private firms and over 200 SOEs operating in Kenya.
Other sector-specific recommendations involve encouraging private investment in electricity through competitive processes; ensuring open access in electricity transmission and distribution infrastructure; strengthening regulations in telecommunications; enforcing mechanisms that promote competition; and making fertilizer subsidy distribution more competitive.
According to analysis presented in the report, implementing these structural reforms could raise annual GDP growth by up to 1.35 percentage points while increasing labor compensation growth by up to two percentage points—potentially translating into about 400,000 new jobs each year at average wage levels.