The World Bank has cautioned that Kenya’s fiscal health is under increasing pressure due to a vulnerable economic outlook and a rising risk of debt distress.
The warning stems from the World Bank Kenya Economic Update and Public Finance Review (PFR) 2025.
“Kenya is at high risk of debt distress, and decisive reforms are urgently needed to keep debt sustainable while promoting growth and jobs,” said Qimiao Fan, World Bank Division Director for Kenya, Rwanda, Somalia, and Uganda, during the release of the report on Tuesday, 27 May, at the University of Nairobi.
“A recent paper presenting evidence of some 221 default episodes shows that sovereign defaults, on average, reduce GDP per capita by around 8.5 per cent, increase poverty by 6 per cent within five years, and worsen other outcomes.”
Treasury Cabinet Secretary John Mbadi presented an optimistic outlook for the country’s economic prospects, noting that Kenya’s economy is projected to grow by 5.3 per cent in both 2025 and 2026.
“I will report here that, while preparing the 2025/26 budget, we were bold as a government. We made the decision to be radical in terms of projecting our fiscal deficit and revenues, which we at the National Treasury feel have been exaggerated over the years,” Mbadi said.
“We reduced our projected expenditure to below what was in the budget policy. We had to cut our budget by Sh120 billion.”
However, World Bank experts warn that this may still not be sufficient.
“Austerity measures alone might not be enough to get Kenya out of its fiscal hurdles. Structural and governance reforms are also needed,” observed Jorge Tudela Pye, a World Bank economist.
– By Edwin Edgar Mutugi
