World Bank Warns Kenya’s Debt Could Raise Cost of Living and Doing Business

The Kenyan economy has reached a critical point, with high public debt and weak revenue collection continuing to squeeze the country’s fiscal space. This may raise the cost of living and deepen the cost of doing business, according to the World Bank.

The warning comes in the bank’s 32nd Kenya Economic Update, released on Monday in Nairobi. The report shows that Kenya’s total public debt now stands at Sh12 trillion, equivalent to 68.7 per cent of GDP, highlighting ongoing macroeconomic vulnerabilities.

“A rise in the primary deficit contributed 1.3 percentage point growth in total public debt, with domestic debt remaining the largest component, reversing previous trends,” the report notes.

Despite these concerns, the World Bank projects that Kenya’s economy will expand at an average of 4.9 per cent between 2025 and 2027, although it still is exposed to a variety of risks. The upward revision from the May 2025 edition reflects a more stable monetary outlook, supported by policy interventions over the past six months.

For example, the banking regulator has cut the base lending rate and revised the risk loan pricing model, which could make borrowing cheaper for businesses while retaining a stable money supply. Kenya’s foreign reserves have also hit a record high of just over Sh12 trillion, supported by a stable shilling, growing diaspora remittances, and rising export earnings.

“Overall, Kenya’s economic outlook remains subject to downside risks that could threaten growth, job creation, and macroeconomic stability.”

The World Bank noted that fiscal challenges, such as high recurrent spending and missed consolidation targets, were still major vulnerabilities that might affect the country’s growth trajectory.

Analysts said the report shows that Kenya needs to strike a balance between its increased borrowing and improved revenue collection, coupled with prudent spending, to protect economic growth and household welfare. Appropriate policies could allow Kenya to achieve continued growth with low inflation, protecting business and citizens’ quality of life.

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