Kenya is expected to rise to the top spot as East Africa’s largest economy, according to the latest forecast from the International Monetary Fund (IMF).
The global lender predicts Kenya’s economy will grow to $117 billion in 2025, overtaking Ethiopia for the first time in years.
This shift comes at a time when Ethiopia is grappling with major financial adjustments. The country recently allowed its currency, the birr, to drop by more than half its value. This move is part of a broader plan to reset the economy and qualify for much-needed loans. So far, this effort has unlocked billions in support from the IMF and the World Bank, but it has also shrunk Ethiopia’s overall economic value in dollar terms.
On the other hand, Kenya has kept its economy more stable. The Kenyan shilling has been gaining strength against the dollar, climbing nearly 21% over the past year. This puts it among the best-performing currencies in the world in 2024, based on IMF data.
Several smart decisions have helped Kenya reach this point. One major step was buying back a $2 billion Eurobond that was due in June 2024. The government replaced it with a new $1.5 billion bond earlier in the year. This reduced the risk of default and made investors more confident about the country’s financial health.
Kenya’s central bank has also been active in the currency markets. Since Governor Kamau Thugge took over in mid-2023, the bank has introduced changes to make trading smoother. These include improving transparency and cutting the minimum size of currency trades, which has helped steady the market.
Another key factor in Kenya’s rise has been the steady flow of money from citizens living abroad. Remittances grew by over 6% last year, reaching nearly KSh 49 billion. These funds play a big role in supporting the economy and backing the strength of the shilling.
Kenya has also seen solid income from its exports. Products like tea, coffee, and flowers continue to bring in steady revenue. In addition, the country has received major financial support from global lenders, including the IMF, World Bank, and Trade Development Bank. These funds have provided a financial cushion, keeping the economy stable during tough times.
While Ethiopia focuses on fixing its debt and stabilizing its economy, Kenya’s steady progress, policy reforms, and smart financial moves are putting it in a strong position. If current trends hold, Kenya is on course to lead East Africa’s economic rankings by next year.