NAIROBI, Kenya – Kenya’s fiscal stability is teetering under the weight of ballooning debt and sluggish economic performance, the World Bank has warned, urging urgent reforms to avert a deepening financial crisis.
In its latest Kenya Economic Update and Public Finance Review, the multilateral lender says the country’s economic outlook remains fragile, with limited budgetary space and a growing risk of debt distress.
It points to a toxic combination of surging debt service costs, underperforming revenue streams, and a persistently high fiscal deficit.
“Kenya’s public debt remains at high risk of distress, with interest payments absorbing about a third of tax revenue,” the report states.
Public debt hit 68 per cent of GDP in 2024—well above sustainable levels—further constraining the government’s ability to invest in development or social services.
The fiscal deficit is estimated at 5.1 per cent of GDP in the current financial year, with a target to reduce it to 4.5 per cent in 2025/26.
Despite marginal improvements in macroeconomic indicators—such as a drop in inflation, a more stable exchange rate, and stronger international reserves—the Bank warned that the underlying fiscal pressures remain unresolved.
“Kenya continues to face structural challenges, including insufficient job creation and low wages, especially among the youth,” said World Bank Country Director Qimiao Fan during the report’s launch at the University of Nairobi.
The report attributes much of Kenya’s fiscal stress to an unsustainable growth model dating back to the early 2010s, compounded by inefficient, distortionary fiscal policies.
It also cites governance weaknesses and poor public service delivery as factors eroding citizen trust in the state’s ability to manage resources.
To restore fiscal health, the World Bank is calling for a fundamental overhaul of the country’s tax system.
Among its recommendations are reforms to personal income tax, removal of inefficient tax exemptions, and expanding the VAT base by eliminating breaks that offer little benefit to low-income groups.
Improving compliance through enhanced enforcement, streamlined procedures, and better taxpayer education would also help raise revenue without raising tax rates, the lender said.
In response, Treasury Cabinet Secretary John Mbadi sought to reassure the public of ongoing reforms aimed at strengthening fiscal discipline and modernising public financial management.
He noted that Kenya’s economy is projected to grow by 5.3 per cent in 2025 and 2026, helped by stronger global conditions and domestic reforms.
To support that growth, Mbadi said the government is institutionalising zero-based budgeting—where spending is justified afresh each year—as part of efforts to reorient budget planning toward efficiency and impact.
The Treasury is also accelerating the shift from cash-based to accrual accounting, implementing a Treasury Single Account for better cash flow management, and promoting public-private partnerships (PPPs) for commercially viable infrastructure projects.
Still, analysts warn that without bolder reforms, Kenya risks locking itself into a cycle of borrowing to service debt, crowding out spending on health, education, and other vital sectors.
