World Bank offices/COURTESY
Kenya's economy is projected to grow by 4.3 per cent this year and 4.4 per cent in 2027, with the World Bank citing heightened global uncertainty and higher energy prices as key factors behind the slower expansion.
In its latest Kenya Economic Update, released Thursday, the World Bank revised its 2026 growth forecast down to 4.3 per cent from the 4.9 per cent it had projected in November.
The latest estimate is also 0.6 percentage points below the government's forecast of 5.0 per cent growth this year.
The lender attributed the downgrade primarily to the economic fallout from the recent Middle East conflict, which has driven up global energy prices and increased uncertainty, weighing on Kenya's economic outlook.
It expects growth to edge up slightly to 4.4 per cent in 2027.
The latest outlook is also below the government's projections.
Treasury Cabinet Secretary John Mbadi told Parliament last month, while presenting the 2026-27 budget, that the economy is expected to grow by 5.0 per cent this year before rising to 5.2 per cent in 2027.
Kenya's economy grew by 4.6 per cent in 2024, according to official data.
The World Bank attributed the downgrade largely to the conflict in the Middle East.
"In the short term, higher global energy prices and increased uncertainty are expected to raise production costs, weaken private investment growth and weigh on household purchasing power through higher commodity prices and moderating remittance inflows," the lender said.
The bank, however, said several domestic factors are expected to cushion the economy against external shocks.
These include favourable agricultural harvests, easing monetary policy, a stable exchange rate and a gradual recovery in lending to the private sector.
Kenya has remained one of East Africa's fastest-growing economies, recording annual growth of about five per cent in recent years despite global economic headwinds.
However, the World Bank warned that the after-effects of the Middle East conflict could continue to exert pressure on the economy through higher fuel prices and increased transport costs resulting from disruptions around the Strait of Hormuz.
The lender said rising fuel costs are likely to push up prices of other essential goods and services, increasing the cost of living for millions of households.
It warned that the resulting inflationary pressures could significantly worsen poverty levels across the country.
According to the report, the conflict could raise Kenya's poverty rate by between 2 and 4.5 percentage points, pushing an additional one million to 2.4 million people below the international poverty line of $3 per person per day.
Beyond global developments, the World Bank also identified domestic risks that could weigh on Kenya's economic performance over the next two years.
These include climate-related shocks such as droughts and floods, as well as political uncertainty ahead of the 2027 General Election.
Kenya is expected to hold the next general election in August 2027.
"Approaching elections may delay private investment decisions, increase policy uncertainty and slow implementation of structural reforms," the World Bank said.
"At the same time, pre-election spending pressures could weaken fiscal discipline and delay planned consolidation efforts, while heightened political tensions could adversely affect business and consumer confidence."
Despite the risks, the World Bank continues to support Kenya's economic reform agenda.
In late June, the lender approved a $750 million budget support loan alongside a $500 million sustainability-linked financing facility aimed at helping Kenya reduce its reliance on expensive domestic borrowing while advancing fiscal and structural reforms.
The financing is expected to strengthen public finances, support macroeconomic stability and create room for investments in priority sectors as the government seeks to sustain economic growth amid an increasingly uncertain global environment
