Kenya attained lower-middle-income status in 2014. However, its transition towards upper-middle-income status has remained elusive. Despite recording economic growth over the years, the country continues to grapple with a labour market dominated by informal employment, with limited expansion of stable, productive, and well-paying jobs.   

The country also hosts East Africa’s largest port, but exports have declined as a share of GDP and remain lower than in other lower-middle-income countries (LMICs). Exports remain predominantly agricultural and raw-material-based.   

In addition, private investment as a share of GDP has stagnated since 2000 and remains well below that of structural and aspirational peers. Foreign Direct Investment (FDI) has also averaged less than 0.5 per cent of GDP since 2018, far below the LMIC average of 1.5-2.0 per cent.   

These trends indicate that Kenya’s further transformation and progress towards upper-middle-income status are significantly constrained.   

According to the World Bank Group’s Kenya Economic Update report, released on November 4, governance challenges are among the key factors holding back more dynamic and broad-based growth in many middle-income countries, including Kenya.   

The report notes that anti-corruption reforms could increase Kenya’s GDP by 8.7 to 22.3 per cent by 2035 relative to a no-reform scenario, improve job opportunities for up to 7.7 million people, and boost household consumption by up to 27 per cent.   

In addition, the anti-graft reforms could reduce Kenya’s debt-to-GDP ratio by up to 18 per cent relative to the baseline. The Bretton Woods institutions further note that improved governance could lower external borrowing costs by 50 to 100 basis points, saving the country US$ 50 million to US$ 100 million annually.  

Governance weaknesses are estimated to widen the country’s annual fiscal deficit by two percentage points of GDP through revenue leakages, inefficient spending and procurement irregularities.   

Source: World Bank Group, Kenya Economic Update: Edition No. 34  

However, Kenya’s GDP growth is projected at 4.6 per cent in 2026, 4.4 per cent in 2027, and 4.8 per cent in 2028, compared with 4.6 per cent in 2025 and 5.2 per cent in H1 2026.  

The report also indicates that the current account deficit is projected to widen to 4.3 per cent of GDP in 2026, up from 2.8 per cent in 2025, reflecting higher import costs and weaker remittances.  

The country’s FY2025/26 fiscal deficit widened to 6.8 per cent of GDP from 6.0 per cent in FY2024/25, exceeding the original 4.7 per cent target. Expenditure reached 24.1 per cent of GDP, up from a budgeted 22.2 per cent.   

Furthermore, public debt stood at 69.9 per cent of GDP in June 2026, with domestic debt accounting for 56.2 per cent of the total. Interest payments accounted for 33.6 per cent of government revenue, equivalent to 5.8 per cent of GDP.  

The report further notes that inflation rose to 7.3 per cent in October 2026, up from 4.6 per cent a year earlier, driven by increases in food (+10.2 per cent) and energy (+10.4 per cent) prices. The Central Bank of Kenya (CBK) kept its policy rate at 8.75 per cent.  

However, private-sector credit growth accelerated to 10.6 per cent in September 2026, up from 5.0 per cent a year earlier, although lending to manufacturing contracted by 1.8 per cent.  

The World Bank projects that poverty will decline marginally to 41.4 per cent by 2028, down from 43.0 per cent in 2026, while 84 per cent of employment remains informal, limiting productivity and income growth.