World Bank Slashes Kenya’s 2025 Growth Forecast to 4.5% Amid High Debt and Credit Slowdown

The World Bank has cut Kenya’s 2025 economic growth forecast to 4.5%, down from an earlier estimate of 5.0%, citing rising public debt, elevated lending rates, and a sharp decline in private sector credit. The revision underscores mounting fiscal and monetary challenges in East Africa’s largest economy.

According to the latest Kenya Economic Update, domestic borrowing has surged due to reduced access to external financing, pushing up interest rates and crowding out private investment. “High lending rates are suppressing credit growth, particularly in key sectors like manufacturing, finance, and mining,” said Naomi Mathenge, World Bank senior economist.

Kenya’s public debt now stands at 65.5% of GDP, placing it at high risk of debt distress. Compounding the issue, tax revenue shortfalls and unpaid government bills have weakened fiscal consolidation efforts. Although inflation and foreign exchange rates have remained stable since 2024, lending rates have not eased in line with monetary policy shifts, further tightening credit conditions.

Private sector credit contracted by 1.4% in December 2024, a stark contrast to the 13.9% growth recorded a year earlier. Non-performing loans have also spiked, particularly among smaller commercial banks, raising financial stability concerns.

The World Bank noted that Kenya's GDP grew by 4.7% in 2024, down from 5.7% in 2023, partly due to mid-year protests over tax increases. Economic growth is projected to rebound to 5.0% over the next two years if weather conditions remain favorable and fiscal risks are contained.

To improve revenue and reduce debt levels, the World Bank recommends eliminating certain consumption tax exemptions and implementing broader tax reforms aimed at supporting inclusive growth.