World Bank Cuts Kenya’s 2025 Growth Forecast

The World Bank has revised Kenya’s 2025 economic growth forecast downward by 0.5 percentage points to 4.5%, according to a statement released on Tuesday.

The adjustment reflects challenges from elevated debt levels, high lending rates, and a contraction in private sector credit.

As East Africa’s largest economy, Kenya has historically achieved strong annual growth, but its performance is being hampered by substantial public debt, repayment pressures, economic disparities, and governance concerns.

“Domestic borrowing, coupled with high lending rates, risk crowding out the private sector,” said Naomi Mathenge, a senior economist at the World Bank, during a briefing on the Kenya Economic Update report, which is typically issued biannually.

The report noted that the government has leaned heavily on domestic markets to finance its budget due to reduced external funding.

Additionally, unpaid bills and shortfalls in tax revenue have hindered fiscal consolidation efforts.

Despite stable inflation and foreign exchange rates since last year, which have allowed policymakers to begin easing monetary policy, real lending rates have remained high, according to the report.

This has contributed to a slowdown in credit growth, impacting sectors like manufacturing, finance, and mining, driven partly by weaker demand.

The report also highlighted a rise in non-performing loans, particularly among smaller commercial banks, further complicating the economic landscape.

Private sector credit growth plummeted to -1.4% in December of the previous year, a stark contrast to the 13.9% growth recorded a year earlier, the World Bank reported. Kenya’s public debt, standing at 65.5% of GDP, places the country at high risk of debt distress, posing additional economic challenges.

Kenya’s economy grew by 4.7% last year, down from 5.7% the previous year, partly due to mid-year protests against proposed tax increases.

The World Bank projects growth to rebound to around 5.0% over the next two years, contingent on avoiding risks such as adverse weather conditions.

To enhance revenue, promote inclusive growth, and reduce debt, the World Bank recommended that the government pursue targeted tax reforms, including removing exemptions on certain consumption taxes.