World Bank Confirms Kenya Growth Slowing to 4.5% Amid High Debt, Urges Fiscal Reforms

Kenya is facing significant fiscal challenges, including high public debt exceeding 65% of GDP, rising interest payments, and an economic slowdown that has led the World Bank to cut its growth forecast for 2025 to 4.5%. The World Bank's Kenya Public Finance Review (PFR) advocates moving beyond austerity measures by implementing a comprehensive reform agenda aimed at fiscal sustainability, inclusive economic growth, and job creation. Key recommendations include broadening the tax base through rationalizing exemptions, encouraging the formalization of informal enterprises, reforming property taxes, and enhancing tax compliance to potentially increase revenues by about 4% of GDP. The report stresses the importance of strengthening governance to reduce fiscal leakages and improving public spending efficiency, including reforms in public financial management and state-owned enterprises. While Kenya’s debt-to-GDP ratio currently puts the country at high risk of distress, a well-sequenced reform package could reduce this ratio to about 44% by 2035, restoring fiscal space without resorting to damaging austerity cuts. The World Bank emphasizes that these reforms, combined with structural transformation and better governance, are essential to spur productivity, protect social cohesion, and sustain growth amidst ongoing fiscal consolidation.