Kenya

Resilient growth thanks to a more stable domestic environment

Growth remained solid and broad-based in 2025, driven by improved agricultural production thanks to better weather and a recovery in industrial activity and construction, while services remained dynamic, albeit growing at a slightly slower pace than in previous years. In 2026, growth will remain stable. Agriculture (estimated at around 18% of GDP and over 40% of employment) will remain supportive barring extreme weather conditions, industrial activity (16% of GDP) should benefit from lower production costs thanks to a more stable exchange rate, and services (58% of GDP) will continue to benefit from tourism, as well as reforms in the ICT sector (AI, cybersecurity and digital governance), which should benefit financial and public services. However, fiscal pressures will limit the capacity to stimulate the economy through public spending, which had been a strong growth driver of the Kenyan economy in the past.

On the demand side, consumption should benefit from a more stable social environment, large inflows of remittances and relatively stable price pressures. Inflation is expected to remain within the Central Bank of Kenya’s (CBK) target range (5+-2.5%), as a stable shilling will support lower imported inflation, while food and oil prices are expected to remain relatively low. Consequently, the CBK, which began its easing cycle in August 2024 and has since lowered its policy rate by 375 bps (9.25% at December 2025) still has a little wiggle room to cut rates in the event of durably sticky inflation. This should support private sector credit growth through lower interest rates, which will benefit households, but more importantly, stimulate investment (18% of GDP), whose contribution to growth has been lacklustre in recent years due to high financing costs and uncertainty both at the domestic and global level.

Public accounts under persistent strain

Kenya’s fiscal situation continues to be a concern, although risks of default have receded. The authorities managed to refinance through several bond issuances in 2024 and 2025, with the latest being USD 1.5 billion as part of a debt buy-back plan via 7-year (at 7.875%) and 12-year (8.8%) bonds in October 2025. Kenya also converted three railway construction loans from China from USD to renminbi to lower the interest payments. Furthermore, the authorities are looking to finance key projects (railway extension to Uganda, upgrading of the Nairobi airport) with bonds secured by revenues linked to the usage of these infrastructures. These efforts to better manage the debt load are part of the broader fiscal consolidation the authorities have committed to. In the fiscal policy framework for FY 2025-2026, the medium-term objective is to reduce the deficit to below 3% of GDP and bring the debt-to-GDP ratio towards 55% by FY 2028-2029. Regarding revenue mobilisation, the planned reforms aim to continue the implementation of the National Tax Policy, improve tax administration (tax base expansion, increased use of digital solutions to improve tax processes, seal revenue loopholes, etc.) and raise non-tax revenues through public services. On the expenditure side, the set of reforms are focused on stronger control and on the effectiveness of public spending, and include the rationalisation of non-essential expenditure, more efficient and transparent procurement processes, increased usage of PPPs, revamping the public pension administration and accelerating SOE reforms.

While these plans are a step in the right direction, it is unlikely that the targets outlined will be met. Due to the weight of interest costs (32% of revenue in 2024) and the wage bill (22%), there is little headroom to considerably reduce expenditure without sacrificing growth, which would consequently lead to lower tax revenues. Furthermore, tax system reforms will take some time to produce their effects on revenue growth. Therefore, the deficit will remain wide, and Kenya will continue to run the high risk of debt distress in the near-term, as the composition of its public debt (45% external, of which around 25% is owed to commercial banks, at high interest rates and with a significant amount at medium maturity) makes it vulnerable to exchange rate and confidence shocks. Kenya stopped being IMF program recipient in April 2025 after the final review of the EFF and ECF programs was cancelled as the country failed to meet the requirements to receive the final tranche (most likely a shortfall in tax revenue). However, discussions between the Fund and the Kenyan authorities on the possibility of instigating a new program began in October 2025. That said, any conditions imposed under the IMF program would probably require Kenya to show commitment to stronger fiscal consolidation through measures which would likely include larger spending cuts and tax increases. Public opinion would probably oppose the measures.

Improvement of the external situation

The current account deficit, which shrank significantly in 2024 on back of enhanced export performance and remittances, should remain relatively stable and moderate in 2026. The trade deficit (around 8% of 2024 GDP) should widen slightly. Exports of tea, coffee and horticultural products should remain robust, but imports should grow at a faster pace as lower oil prices will be offset by higher domestic demand for animal and vegetable oils, manufactured goods, industrial supplies, transport equipment and machinery. The services balance will continue to show a slight surplus, supported by solid tourism receipts, as Kenya remains a very attractive destination in Africa. However, the balance will be moderated by significant services payment, including for transport. The primary income deficit, due mainly to interest payments on external debt, will be more than offset by the large secondary income surplus, which continues to be fuelled by considerable expatriate remittance inflows. The latter mainly come from North America (58% in 2023), particularly the US. As FDI in Kenya remains very low – it stood at around 0.5% of GDP in 2024 – the external deficit will continue to be financed primarily by multilateral and commercial borrowing, which should now be easier to access in light of improved confidence after Kenya was able to honour its public external debt repayments. Relative to 2023-2024, the improved external situation, combined with higher investor confidence, has boosted FX reserves, which stood at an adequate level of 5.2 months of import coverage in Q2 2025.

Durably tense domestic socio-political environment

President William Ruto, who was elected in August 2022 for a five-year term, and his Kenya Kwanza coalition, have an absolute majority in the National Assembly (179 seats out of 349) and hold 33 seats out of 67 seats in the Senate. While the opposition coalition, Azimo la Umoja, is strongly represented in both Houses (158 seats in the National Assembly and 33 in the Senate), it has been weakened by the demise of its leader, Raila Odinga, in October 2025 and defections, including in large parties such as the Orange Democratic Movement (89 seats) which was part of the government. President Ruto’s hold on power has consequently strengthened, putting him currently in a strong position to secure re-election in 2027. While the government’s pro-business stance and commitment to fiscal consolidation are generally well-perceived at the international level, the domestic socio-political environment is still tense. Kenya is among the countries that have experienced large protests by Gen Z citizens, especially over the 2024 Finance Bill, which ultimately forced President Ruto to reject it. The tax increases that were proposed to stabilise the public accounts under an IMF program sparked an outcry by young Kenyans, both against President Ruto and his government and the IMF. Protests lasted for over a month and were violently repressed. The events illustrate the sharp disconnect between the political class and the population, that fact that economic opportunities are highly uneven and that many Kenyans are unwilling to pay for the administration’s policy mistakes. The risk of social instability will continue to loom large as fiscal consolidation will remain one of the government’s main objectives and more restrictive measures could be necessary to secure a new deal with the IMF.

Internationally, Kenya should continue to strengthen its regional integration within the East African Community, which should also benefit from the easing of tensions between the Democratic Republic of the Congo and Rwanda. Furthermore, trade links are likely to deepen thanks to the dynamism of neighbouring countries such as Ethiopia, Uganda and Tanzania, as well as improved rail connectivity thanks to the East African Railway Master Plan. Multilateral and bilateral ties with partners such as the EU and China should remain strong, but the relationship with the US could prove more complicated as President Ruto’s foreign policy, which is based on multilateralism and climate financing, could clash with Washington’s position on these matters.

Last updated: December 2025