World Bank Sees Kenyan Growth at Weakest Since Covid on Iran War

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(Bloomberg) — Kenya’s economy is likely to grow at the slowest pace since the coronavirus pandemic because of the effects of the US-Israeli war on Iran, according to the World Bank.

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East Africa’s biggest economy is expected to expand 4.3% in 2026 and 4.4% over the medium term, the Washington-based lender said a report published Thursday. The estimate for this year compares with 4.6% in 2025 and would be the slowest pace of growth since 2020.

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Kenya’s economy is facing a confluence of external and domestic pressures including the impact of higher crude and fertilizer prices on manufacturing and farm output, pressure on consumer income from declining remittances and fiscal constraints from high debt-service costs and weak revenue. The central bank last month cut its growth forecast for this year to 4.9% from 5.3% previously.

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“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 World Bank said.

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Political uncertainty before general elections in August 2027 may also curb activity by delaying private investment decisions, heightening policy uncertainty and slowing the implementation of structural reforms, it said.

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Fiscal consolidation will continue, limiting the contribution of the government’s consumption to output, the bank said.

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“High public debt and persistent fiscal pressures continue to constrain fiscal space, while rigid expenditure commitments and large debt-servicing obligations limit the government’s ability to absorb shocks and expand priority social and development spending,” it said.

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The budget deficit is seen narrowing to 5.7% of gross domestic product in the year through June 2027, compared with an estimated 6.8% in the just concluded budget year. That’s wider than the Kenyan Treasury’s projection of 5.5% in 2026-27.

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Kenya’s sale of state-owned assets to private companies will provide only limited direct fiscal relief, as most of the proceeds are expected to finance infrastructure investment, the bank said.

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The Treasury’s move to re-schedule debt maturities through buybacks and swaps has successfully helped manage liabilities that had threatened public finance. As part of that program, Kenya swapped $3.5 billion owed to the Export-Import Bank of China into yuan to benefit from lower interest payments, the bank said.

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Though higher fuel prices are expected to fan inflation, the bank said it expects Kenyan price growth to remain within the central bank’s 2.5% to 7.5% target range.

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