Kenya’s economic prospects for 2025 have dimmed as the World Bank revises its growth forecast downward to 4.5%, highlighting deepening financial pressures tied to soaring public debt, elevated lending rates, and shrinking private sector credit.
The Bank attributes the downgrade primarily to the government’s heavy dependence on domestic borrowing, which, coupled with high interest rates, is increasingly crowding out private investment. These financial dynamics have triggered a contraction in private sector credit, with growth plummeting to -1.4% in December 2024.
Key sectors such as manufacturing, finance, and mining are bearing the brunt of the credit squeeze. Small and medium-sized enterprises (SMEs), particularly those relying on financing from tier-two banks, are struggling with rising non-performing loans and limited access to capital.
Kenya’s public debt has ballooned to 65.5% of GDP, a level that the World Bank deems unsustainable without significant policy interventions. In response, the Bank is urging the government to adopt targeted tax reforms and more disciplined fiscal policies to improve public finances, stimulate private investment, and sustain long-term growth.
As East Africa’s largest economy navigates these challenges, all eyes will be on the Kenyan government’s next fiscal moves—and whether they can strike a balance between managing debt and reigniting growth.
