Kenya is operating in a tightly constrained economic space. Debt levels are high. Credit remains tight. Borrowing costs have climbed. And global trade winds are no longer in our favour. In this environment, policy mistakes are not absorbed; they compound.

 

This is the backdrop described in a recent CNBC Africa segment featuring NCBA Group Chief Economist Raphael Agung. His framing of the risks was blunt: the macroeconomic direction is broadly sound, but the gap between policy intent and execution remains too wide.

 

Trade Terms are Shifting, and So Must We

Kenya’s traditional export model, built on tea, coffee, and textiles, is coming under pressure. The African Growth and Opportunity Act (AGOA), which provides preferential access to the United States’ (U.S.) markets, is set to expire on September 30, 2025. For Kenya, that transition is less damaging than for some of its neighbours – only 10 per cent of our exports rely on AGOA, compared to about 20 per cent for some states.

 

But the broader challenge is cost competitiveness. The global tariff environment has hardened, and our input costs, from energy to logistics, remain high. As Agung noted, without structural reforms to improve efficiency and reduce production costs, Kenya risks losing its export share slowly and quietly. That’s how market positions are lost, not through crisis, but through drift.

Export diversification remains limited, and new trade agreements to replace AGOA have yet to be finalised. Kenya’s strategy for bilateral trade, particularly with the U.S. and the European Union (EU), will need to be accelerated and made public to provide producers and investors with a clear line of sight.

 

Fiscal Choices: Learning from the Past

Kenya’s 2025/2026 budget reflects a strategic pivot. There is a reduced reliance on expensive external debt and a greater emphasis on domestic and concessional sources of funding. That’s the right move, shaped by the harsh experience of 2022 and 2023.

 

Debt management has improved. Some 2024 maturities have been refinanced, and ongoing liability operations are in place. But this doesn’t yet add up to fiscal stability. The budget deficit still hovers around 3.5 per cent of GDP. Development spending remains high. And revenue growth is uncertain.

 

Agung emphasised that the credibility of Kenya’s fiscal path will be judged not by its design, but by its delivery. The key test will be whether fiscal consolidation continues beyond short-term refinancing. Delays in implementing revenue-enhancing reforms or continued off-budget spending would quickly erode the progress made.

IMF Re-engagement May Not Be Optional

Kenya is currently outside of an International Monetary Fund (IMF) programme. That status gives the government more rhetorical space, but less financial flexibility. A Debt Sustainability Framework consultation is expected in September, which may pave the way for a new arrangement.

 

The IMF played a stabilising role during Kenya’s 2022/2023 financing squeeze. That’s a fact, not an opinion. Reengagement could provide not only concessional funding but also an anchor for investor sentiment, which has been fragile in recent quarters. Avoiding the IMF does not avoid pressure. It only delays it. There is also growing external pressure for clarity. Rating agencies and multilateral lenders are closely watching how Kenya positions itself in the post-AGOA and post-pandemic era. Any perceived lack of commitment to reform will carry real consequences in future borrowing terms.

 

Watching Ahead for 2026

The next phase of Kenya’s economic response will depend on five interlinked factors:

1. IMF Consultation in September: A credible outcome could help stabilise markets and open up room for better borrowing terms.
2. Post-AGOA Trade Strategy: Kenya must define new bilateral pathways, or risk slow erosion of export value.
3. 2026 Budget Restraint: Political will is being tested. Spending discipline needs to match rhetoric.
4. External Rate Sensitivity: Any U.S. rate increase will be reflected in Kenya’s cost of debt and currency exposure.
5. Policy Coordination: Alignment between the Treasury and Central Bank must be maintained. Mixed signals will carry a cost.

 

The Window for Soft Targets Has Closed

Kenya’s economic outlook is workable but not forgiving. There is no margin for vague commitments or policy delays. Markets no longer respond to optimism. They respond to performance. The country does not need more ambition. It needs discipline. Agung’s message was simple: we’ve come through worse, but only when choices were clear, coordinated, and consistent.