The World Bank New Report
The combined factors of the increasing fiscal challenges, despite the stable monetary and external environment, put Kenya’s economy in a situation of a turning point according to the World Bank’s latest Kenya Economic Update with a special focus on competition policy.
The report exposes that the 2024/25 fiscal year saw an increase in fiscal slippage with the budget deficit rising to 5.9 percent of GDP which is significantly higher than the revised target of 4.3 percent.
The gap led to a rise in the total public debt stock, signaling that the country is still facing macroeconomic vulnerabilities.
It was also reported that the current account deficit widened in the year to September 2025. The World Bank associates this trend with a rebound in domestic demand, which has led to an increase in imports.
In spite of these burdens, the Bank sees that private sector credit is picking up, with support from the Central Bank of Kenya’s (CBK) more accommodative monetary policy stance.
Still, the World Bank forecasts that Kenya’s economy will expand at a rate of 4.9 percent on average from 2025 to 2027.
The organization, however, warns that the outlook is still uncertain due to the high risk factors such as fiscal stress, global market volatility, and structural challenges at home.
The report pinpointed that the biggest problem for Kenya was the country’s restrictive legal and regulatory environment, which not only limits but also hinders fair competition.
Unlike advanced economies with more open markets, Kenya’s business environment is more regulated, less contestable in terms of the market, and has a large number of state-owned enterprises (SOEs) which form an extensive network.
The Bank warned that the range of SOEs coupled with their poor governance structures were the main factors that caused the distortions that not only limited private sector participation but also stifled innovation and created inefficiencies in the sectors that were inter alia the leading ones.
“If Kenya were to remove the obstacles to competition, it could, among other things, increase the country’s economic productivity by a large margin, create more employment opportunities, and improve market efficiency substantially,” the report reveals.
The World Bank proposes that the government should accelerate reforms in competition policy, endorse governance in SOEs and enhance the environment to be more conducive of private-sector-led growth by increasing the participation of the private sector.
While Kenya is laying out its economic future, the report conveys the message that not only are structural reforms necessary but also they have to be of a bold nature if the country is to maintain fiscal stability and also be able to leverage on its full growth potential.