Kenya’s economy is projected to grow by an average of 4.9% between 2025 and 2027, reflecting stronger-than-expected momentum supported by easing monetary policy and a rebound in the construction sector. Inflation remains within target, the exchange rate is stable, and foreign exchange reserves have reached record highs. Private sector credit is also recovering, growing 5% year-on-year by September 2025 due to lower lending rates and an accommodative monetary stance. Despite these positive indicators, fiscal pressures are intensifying, with the FY2024/25 deficit widening to 5.9% of GDP—above the initial 4.3% target—driven by revenue shortfalls and rigid expenditure structures, while public debt rose to 68.8% of GDP, keeping Kenya at high risk of debt distress.
Labor market challenges persist, with formal employment accounting for only 15% of total jobs and real wages declining, highlighting structural weaknesses in productivity and job creation. The World Bank’s report From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya emphasizes the urgent need for reforms that enhance competition, boost productivity, and create higher-quality employment. Kenya’s high Product Market Regulation score of 2.92 indicates significant scope to ease regulatory restrictions and promote private sector growth.
Key reform measures include limiting exchequer transfers to commercial state-owned enterprises and adopting performance-based transfers for public service obligations to level the playing field between private firms and the country’s over 200 SOEs. Sector-specific reforms focus on enabling private investment in electricity through competitive procurement and open access to transmission infrastructure, strengthening competition in telecommunications, and making fertilizer subsidy distribution more market-oriented.
Implementing these procompetitive reforms is critical for unlocking private investment, increasing productivity, and generating quality jobs. The report estimates that these measures could raise Kenya’s GDP growth by up to 1.35 percentage points and increase labor compensation growth by up to 2.0 percentage points, equivalent to creating approximately 400,000 jobs annually at current average wage levels.
