Keypoints:
- IMF forecasts Kenya will surpass Ethiopia’s economy in 2025
- Currency strength and foreign loans shape the regional outlook
- Both nations face external pressures from global trade tensions
KENYA is poised to overtake Ethiopia as East Africa’s largest economy in 2025, according to fresh forecasts from the IMF.
The IMF projects that Kenya’s gross domestic product (GDP) will reach $132bn this year, outpacing Ethiopia’s expected $117bn. The shift comes after Ethiopia liberalised its exchange rate system in July 2024, triggering a sharp depreciation of over 55 percent against the US dollar, Bloomberg reports.
Despite securing significant financial support — including a $3.4bn loan from the IMF and $16.6bn from the World Bank — Ethiopia is still grappling with the impact of its weakened currency. The country has also initiated talks with creditors to restructure at least half of its $28.9bn external debt.
Kenya’s currency rebounds strongly
While Ethiopia faces economic headwinds, Kenya’s financial performance has been buoyed by a series of positive developments. The Kenyan shilling strengthened by approximately 21 percent in 2024, making it the best-performing currency globally.
Further boosting confidence, Kenya issued a $1.5bn bond in February 2025, significantly increasing its gross reserves. Rising remittance inflows from the diaspora and higher export earnings have also supported the shilling’s robust recovery, Kenya’s Treasury has confirmed.
However, Kenya’s economic trajectory is not without challenges. A controversial plan to raise taxes and narrow the budget deficit last year sparked nationwide protests, leading to at least 60 deaths. Following public outcry, the government was forced to revise its fiscal strategy, complicating efforts to meet conditions under a four-year, $3.6bn IMF programme. The administration ended the programme early, forfeiting around $850 million (£638 million), and is now negotiating a fresh agreement.
Global pressures weigh on East Africa
Both Kenya and Ethiopia face broader risks linked to escalating global trade tensions. The IMF on Tuesday downgraded its global growth forecast for 2025 from 3.3 percent to 2.8 percent, warning that heightened tariffs, particularly from the United States, could trigger a demand shock that would ripple across international markets.
Sub-Saharan Africa’s economic outlook has also dimmed slightly. Regional GDP is now expected to grow by 3.8 percent this year, marking the slowest pace since the Covid-19 pandemic and about 0.4 percent lower than previous projections.
As Kenya and Ethiopia navigate volatile currency markets, debt pressures, and shifting global trade dynamics, the race to lead East Africa’s economy looks set to intensify in 2025.
