Kenya’s economic outlook worsens as debt and policy uncertainty weigh on growth

Kenya’s long-term economic outlook is facing growing risks, according to a new report by the Institute of Public Finance (IPF), a public finance policy think tank.

The report, which reviews macro-economic performance for the six months to June, warns that optimism about the country’s growth prospects is fading.

“The impact of nationwide protests, fiscal stress, early exit from the IMF programme and policy uncertainty appears to be weighing heavily on investor confidence and domestic productivity,” it states.

“Households continue to battle with the high cost of living and reduced disposable income.”

IPF notes that all institutions which had projected GDP growth of at least five per cent in January 2025 have since revised their forecasts downwards, signalling worsening conditions.

Mounting public debt

The think tank attributes the decline mainly to mounting public debt and repeated policy reversals.

“Given the explosion in debt interest payments and disproportionate growth in revenue, it is extremely crucial for the government to cut non-priority spending. Debt to GDP is 64 per cent, above the 55 per cent anchor.”

According to the report, stabilising debt would require a primary surplus of two per cent of GDP—total revenue minus expenditure excluding interest payments—compared to the current deficit of four per cent.

Kenya also faces significant external refinancing pressures, particularly from maturing Eurobonds.

“Large peaks are visible in 2028, 2034, and 2036, each with a $1 billion (Sh129.2 billion) obligation, alongside smaller but still significant maturities in intervening years.”

Development spending

Without decisive fiscal consolidation, credible refinancing strategies, or effective debt reprofiling, these obligations risk crowding out development and social spending while raising borrowing costs and sovereign risk, the report warns.

IPF also points to unfulfilled policy commitments, citing the withdrawal of the 2024 Finance Bill, which forced a downward revision of revenue targets for FY2024/25 from Sh2.9 trillion to Sh2.4 trillion, even as expenditures rose by Sh51 billion.

This raised doubts about the government’s commitment to fiscal consolidation.

Other Topics To Read

• National
• Institute of Public Finance
• public debt
• revenue growth
• Kenya’s economic outlook. Kenya debt
• Kenya’s economic outlook worsens as debt and policy uncertainty weigh on growth
• Headlines

Public resistance to higher taxes later prompted a Sh122 billion budget cut in the FY2024/25 Supplementary I Budget estimates. The government announced austerity measures and adopted a piecemeal approach to revenue reform.

However, IPF argues these steps have had a limited effect.

Slight revenue growth

“Although slight growth in revenue was realised in FY2024/25 compared to the previous year, failure by the government to adhere to austerity measures while at the same time revising revenue downwards increased fiscal deficits, a backtrack on fiscal consolidation,” the report said.

As a result, the projected fiscal deficit widened sharply—from Sh769 billion in the Supplementary I Budget estimates to Sh999.9 billion in the Supplementary III Budget estimates for FY2024/25.

Daniel Ndirangu, IPF Country Lead, stated that the government’s reliance on supplementary budgets and continued debt accumulation highlights the fragility of Kenya’s fiscal framework.

“Kenya’s macro-fiscal position at mid-2025 reveals a widening credibility gap between stated policy intentions and actual implementation,” Ndirangu said.

To restore growth and rebuild trust, he stressed the need for predictable reforms, transparency, and meaningful public participation in fiscal decisions.

The report also raises concerns about the healthcare sector.

It notes that while the Social Health Authority (SHA) was established in 2023 to fix inefficiencies in the National Hospital Insurance Fund (NHIF), early assessments suggest SHA is falling short.

In particular, it highlights challenges in service delivery and transparency in patient care—both crucial for safeguarding public trust.