Kenya’s economy is at a pivotal point. The figures present a picture of relative stability: GDP growth at 4.9 per cent, inflation at 3.82 per cent, and the Central Bank Rate recently reduced to 9.5 per cent. However, behind these numbers lies a complex balance of risks and opportunities that will influence the country’s trajectory in the years ahead.

The Monetary Policy Committee’s decision to cut rates was a calculated move. Growth of less than 5 per cent is insufficient for Kenya’s development goals. By easing policy, the central bank is betting that cheaper credit will encourage investment and promote expansion. With inflation expectations stable into 2025, the move seems justified. The risk of reigniting inflation remains low, and the urgency to stimulate growth is high.

Still, one red flag cannot be ignored: non-performing loans remain at 17.6 per cent, the highest level since 2015. Despite signs of credit revival, loan quality continues to decline. The CBK has resisted calls for a return to broad restructuring measures, similar to those implemented during the pandemic. Instead, it is introducing a new credit pricing framework. By linking lending rates to a transparent benchmark directly connected to monetary policy, the central bank aims to lower borrowing costs sustainably. If successful, this reform could gradually improve credit conditions and reduce financial stress in the banking sector.

Debt remains a significant challenge. Kenya’s Eurobond maturities beyond 2027 pose a future obligation. The government has already demonstrated strategic skill in managing liabilities, utilising last year’s operations to mitigate short-term risks and reassure markets. However, the issue of refinancing cannot be deferred indefinitely. As global central banks shift towards rate cuts, financing conditions are expected to improve soon. The expectation is that Kenya will act strategically, accessing markets only when conditions are favourable.

For investors, the signals are mixed but promising. Kenya remains East Africa’s economic pillar. Inflation is low, interest rates are stabilising, and the exchange rate remains steady. Even at 4.9 per cent, growth surpasses many regional competitors. These fundamentals, along with policy reforms on both monetary and fiscal fronts, bolster the investment case.

The risks, however, are genuine. Fiscal dominance remains a significant concern. High levels of debt and ongoing revenue shortfalls are constraining fiscal space, increasing the likelihood of crowding out private sector investment. The government has aimed to reduce the primary deficit to below 4.5 per cent. Achieving this will be challenging, especially given recent difficulties in revenue mobilisation. Expanding the broader tax base is on the agenda—a politically sensitive but necessary step for fiscal sustainability.

This creates a delicate balance in policy. Monetary policy is being eased to promote growth, while debt pressures limit the scope of fiscal policy. The tension between the two will remain, and markets will quickly respond to any signs of slippage. With careful management, the combination could succeed: fiscal consolidation paired with pro-growth monetary policy. If not, the risk is a return to budgetary stress and market volatility.

The investment question, therefore, revolves around timing and confidence. Kenya faces high levels of non-performing loans, upcoming Eurobond maturities, and fiscal pressures. However, it also offers macroeconomic stability, a reform-minded central bank, and a government aware of its fiscal limitations. The country has demonstrated an ability to navigate challenging market conditions in the past. With global interest rates decreasing and domestic reforms accelerating, the outlook could improve further.

Kenya is truly at a crossroads. The upcoming steps on debt refinancing, credit reforms, revenue mobilisation, and growth acceleration will decide whether the country transforms its relative stability into a launchpad for stronger performance or remains burdened by fiscal stress and limited growth. For investors, the outlook remains cautiously optimistic: the fundamentals are solid, the risks are apparent, and the opportunities are genuine.