Kenya’s economic recovery is showing signs of strength, but serious challenges remain that could slow progress if not addressed.
The World Bank for Africa has highlighted concerns over rising fiscal pressures, even as the country benefits from improved monetary conditions and a rebound in key sectors like construction.
In its latest economic update, the Bank projected that Kenya’s economy could grow by an average of 4.9 per cent between 2025 and 2027, an improvement from earlier forecasts.
Factors such as stronger private sector credit, lower lending rates, a stable exchange rate, and record-high foreign exchange reserves are supporting this growth.
By September 2025, private sector credit had grown by five per cent year-on-year, reflecting a more favourable lending environment.
Despite this positive outlook, the World Bank warns that Kenya’s fiscal position is weakening.
The fiscal deficit for FY2024/25 widened to 5.9 per cent of GDP, exceeding the original target of 4.3 per cent.
This increase is largely due to revenue shortfalls and inflexible expenditure structures.
Public debt also reached 68.8 per cent of GDP during the same period, placing Kenya in the high-risk category for debt distress.
The Bank emphasised that fiscal pressures could continue to build, and without careful management, these issues could threaten long-term economic stability.
Qimiao Fan, the World Bank’s Division Director for Kenya, Rwanda, Somalia, and Uganda, pointed out that Kenya could unlock even more growth by addressing structural barriers to competition, creating better-paying jobs, and lowering prices for consumers.
Jorge Tudela Pye, the Bank’s Country Economist for Kenya, echoed this sentiment, noting that while macroeconomic indicators are strong, the fiscal outlook remains vulnerable to risks that could undermine sustained growth.
The Bank also highlighted ongoing challenges in the labour market. Formal employment remains at just 15 per cent, and real wages continue to fall, reflecting deep structural problems that limit productivity and job creation.
In its report titled From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya, the World Bank stressed the need for reforms to boost competition across sectors.
Recommendations include reducing transfers to commercial state-owned enterprises, introducing performance-based systems for public service obligations, and opening electricity transmission and distribution to private investors.
Strengthening telecommunications regulation and ensuring fair distribution of fertiliser subsidies were also identified as key measures.
According to the Bank, these reforms could increase Kenya’s GDP growth by up to 1.35 percentage points and raise labour compensation growth by two percentage points, potentially creating around 400,000 jobs annually.
The message is clear: Kenya is on a promising path, but without strong fiscal discipline and structural reforms, the country risks slowing down its growth momentum and undermining long-term economic stability.
The report underscores the urgent need for decisive action to ensure that the current recovery translates into inclusive and sustainable development.
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