By Beckham Morara
Kenya’s economic prospects are showing signs of strain as the World Bank has downgraded the country’s 2025 GDP growth forecast to 4.5%, down from the previous estimate of 5.0%. The revision highlights mounting challenges including soaring public debt and a sharp contraction in private sector credit, factors that are dampening the nation’s economic momentum.
Public debt in Kenya has ballooned to 65.5% of GDP, significantly exceeding the East African Community’s recommended limit of 50%. This increase stems largely from heightened domestic borrowing and rising interest payments, which are diverting crucial resources away from development projects.
At the same time, credit growth to the private sector has taken a severe hit. By December 2024, private sector credit contracted by 1.4%, a steep drop from 13.9% growth the year before. High lending rates and cautious bank lending practices have restricted access to credit, particularly affecting small and medium-sized enterprises (SMEs), which are vital engines for job creation and economic diversification.
Despite these setbacks, inflation has shown signs of easing. Kenya’s annual inflation rate fell to 3.8% in May 2025 from 4.1% in April, remaining comfortably within the Central Bank of Kenya’s target band of 2.5% to 7.5%. This moderation provides some relief to consumers and may allow for more flexible monetary policies aimed at stimulating growth.
The World Bank has urged the government to accelerate tax reforms and curb non-essential spending as part of efforts to improve fiscal discipline and promote inclusive economic development. Without decisive measures, Kenya risks worsening debt distress and further slowdown of its economy.
As the nation grapples with these economic headwinds, experts stress that strategic policy actions and structural reforms will be critical to stabilizing growth and ensuring a sustainable economic future for Kenya.
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