World Bank Slashes Kenya’s 2025 Growth Forecast To 4.5% Amid Rising Debt, Credit Challenges

The World Bank has revised down Kenya’s economic growth forecast for 2025, cutting it by half a percentage point to 4.5 per cent, citing mounting debt, high lending rates, and a contraction in private sector credit.

Kenya, the largest economy in East Africa, has traditionally shown strong annual growth. However, the World Bank’s latest Kenya Economic Update, released on Tuesday, highlights how high public debt levels, heavy debt repayments, economic inequality, and governance challenges have hindered its performance.

“Domestic borrowing, coupled with high lending rates, risk crowding out the private sector,” said Naomi Mathenge, senior economist at the World Bank, during a briefing on the report, which is published biannually.

The report explains that the Kenyan government has increasingly relied on domestic markets to finance its budget, due to reduced external funding. At the same time, unpaid bills and tax revenue shortfalls have weakened efforts to consolidate public finances.

Despite authorities maintaining stable inflation and foreign exchange rates since last year—allowing some easing by policymakers—real lending rates have remained high.

This has contributed to a slowdown in credit growth, negatively impacting key sectors such as manufacturing, finance, and mining, partly because of weaker demand. The rise in bad loans, especially among smaller commercial lenders, has further exacerbated the situation.

Private sector credit growth fell to minus 1.4 per cent in December 2024, compared with 13.9 per cent growth the previous year, according to the report.

Kenya’s debt currently stands at 65.5 per cent of GDP, placing the country in the “high risk of distress” category, the World Bank noted.

The economy grew by 4.7 per cent last year, down from 5.7 per cent in 2023, partly due to civil unrest triggered by tax increases.

Looking ahead, growth is expected to rebound to around 5.0 per cent over the next two years, provided risks such as adverse weather conditions are avoided.

The World Bank urged the Kenyan government to pursue targeted tax reforms, including removing exemptions on certain consumption taxes, to enhance revenue, promote inclusive growth, and reduce the debt burden.

Boluwatife Enome

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