World Bank Projects Slower Kenyan Economic Growth in 2025
- The World Bank released its economic update on Kenya on Tuesday, cutting the country's projected economic growth by 0.5%
- It attributed the projected slow economic growth to high public debt, which has crossed the KSh 11 trillion mark
- The Bretton Woods institution said the economy will rebound in 2026 and grow by 5% due to a stable exchange rate
Japhet Ruto, a journalist at TUKO.co.ke, brings more than eight years of experience in finance, business, and technology, offering deep insights on economic trends in Kenya and globally.
The World Bank has lowered Kenya's 2025 economic growth forecast from an initial estimate of 5% to 4.5% due to increased debt risks and dwindling private sector credit.
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In its latest economic update released in Nairobi on Tuesday, May 27, the global lender cut the projected growth by 0.5% from the December 2024 forecast.
However, the Bretton Woods institution said the economy will rebound in 2026 and grow by 5%.
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"Kenya’s real Gross Domestic Product (GDP) is expected to pick up gradually in the medium term with the external sector also projected to remain stable in the medium term. Real GDP growth is projected to increase from 4.5% in 2025 to about 5% in 2026/27," the lender stated.
Why the World Bank projected slow Kenyan economic growth
The World Bank attributed the projected slow economic growth to high public debt, which has crossed the KSh 11 trillion mark, high interest rates and weakening demand for goods and services.
"Kenya’s public debt continues to face a high risk of distress, with interest payments consuming roughly one-third of tax revenue. Implementing reforms to enhance fiscal sustainability equitably, while fostering inclusive growth and job creation, is essential to rejuvenate a decelerating economy and bolster a fragile labour market," it explained.
The report states that while the general rate of economic growth has slowed, some macroeconomic indicators have improved since 2024, including falling inflation, a stable exchange rate, and higher foreign reserves.
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It listed several issues, including floods, a decline in business confidence after the Gen-Z anti-government protests, and a cutback in development expenditure.
"Even if Kenya's macroeconomic metrics have improved, the nation still faces structural issues like low wages, particularly among young people, and a lack of job creation," Qimiao Fan, the World Bank country director for Kenya and other East African countries highlighted.
Why the World Bank advised Kenya to lower taxes
In the same report, the World Bank recommended that Kenya increase the top income tax rate for those earning over KSh 800,000 to 38% while lowering the tax burden on middle- and low-income workers.
It suggests creating a new tax category for high earners to make up the revenue gap from decreasing taxes on monthly earnings below KSh 166,677.
Currently, individuals who earn more than KSh 500,000 per month pay a tax rate of 32.5%, while those who take home than KSh 800,000 pay a high rate of 35%.
The take-home pay of a Kenyan making KSh 50,000 could rise by KSh 179.15 to KSh 39,208.30 if the Treasury implements the recommendations.
Workers earning KSh 100,000 could receive a raise of KSh 3,788.15.
Proofreading by Mercy Nyambura, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
