NAIROBI, Kenya- Kenya’s economy expanded faster in the first half of 2026, but persistent fiscal slippages, high debt and weak job quality could still limit the country’s prospects for stronger and more inclusive growth, the World Bank has warned.
In its latest Kenya Economic Update, the World Bank said real GDP grew by 5.2 per cent year-on-year in the first half of 2026, up from 4.9 per cent in the same period a year earlier. The improvement was driven largely by industry and services, which helped offset slower growth in agriculture.
The lender, however, expects full-year growth to remain at 4.6 per cent in 2026, before slowing to 4.4 per cent in 2027 and recovering to 4.8 per cent in 2028.
The 2026 projection was revised up by 0.3 percentage points after stronger-than-expected performance in the first half of the year. But the World Bank said growth remains below Kenya’s potential and may not be enough to generate sufficient productive jobs for the expanding workforce.
Employment grew by 4 per cent in 2025, but 83.8 per cent of jobs remained informal, limiting wage growth, productivity gains and the pace of poverty reduction.
Deficit misses target
The report identified fiscal management as one of the biggest risks to the economic outlook, saying the budget deficit widened to 6.8 per cent of GDP in the 2025/26 financial year, well above the original target of 4.7 per cent.
Revenue reached 17.3 per cent of GDP, falling 0.2 percentage points below the original target, while expenditure rose to 24.1 per cent of GDP against an initial budget of 22.2 per cent.
Higher recurrent spending, development expenditure and interest payments contributed to the gap, according to the report.
The World Bank said repeated supplementary budgets and spending above original allocations had weakened budget credibility, arguing that more realistic budget baselines and tighter controls would be needed to restore confidence in fiscal management.
Gross public debt stood at 69.9 per cent of GDP at the end of June 2026, with domestic debt accounting for 56.2 per cent of the total. Interest payments reached 5.8 per cent of GDP, leaving the government with less room to finance public services and development projects.
The lender said Kenya’s growing reliance on domestic borrowing had also deepened the link between government debt and the banking sector, raising the risk that public borrowing could crowd out credit available to businesses.
Inflation and external pressures
Inflation rose to 7.3 per cent in October 2026 from 4.6 per cent a year earlier, pushed up by higher energy and food prices. Energy inflation rose by 10.4 per cent, while food inflation increased by 10.2 per cent.
The Central Bank of Kenya maintained its policy rate at 8.75 per cent after February, even as private-sector credit growth reached 10.6 per cent in September.
Kenya’s external position also came under pressure as imports grew faster than exports and remittances slowed. The current account deficit widened by 59.4 per cent in the 12 months to August 2026, while the trade deficit rose by 20.8 per cent.
Still, the World Bank said reserve buffers remained strong at $14.7 billion in October, equivalent to 5.9 months of import cover, while the shilling remained broadly stable.
The report projected the current account deficit to widen from 2.8 per cent of GDP in 2025 to 4.3 per cent in 2026, mainly because of higher fuel costs and capital-goods imports.
Risks ahead
The World Bank listed fiscal slippages, high debt-service costs, adverse weather, elevated global fuel prices and political uncertainty ahead of the 2027 General Election among the main risks facing the economy.
It said stronger fiscal discipline, lower power and logistics costs, improved governance and reforms that support private investment would be critical if Kenya is to create better-paying jobs and sustain faster growth.
