Kenya is on track to overtake Ethiopia as East Africa’s largest economy this year, according to the International Monetary Fund (IMF).
The IMF predicted that Kenya’s gross domestic product will reach $132billion (£99billion) in 2025, surpassing Ethiopia’s projected $117 (£87) billion. This follows Ethiopia’s decision to liberalise its exchange rate system in July, which led to a depreciation of more than 55% against the dollar, Bloomberg reports. Despite this, Ethiopia secured a $3.4billion (£2.5billion) loan from the IMF and $16.6billion (£12billion) from the World Bank, and began discussions with creditors about restructuring at least half of its $28.9billion (£21billion) external debt. In contrast, the Kenyan shilling strengthened by around 21% last year, making it the best-performing currency worldwide.
The shilling was further boosted when Kenya issued a $1.5billion (£1.1billion) bond in February, enabling it to increase its gross reserves.
Higher remittances from the diaspora and increased export receipts over the past year have also contributed to this, according to Kenya’s Treasury.
However, Kenya faces its own challenges. A controversial plan to raise taxes and reduce the budget deficit sparked protests last year, resulting in at least 60 deaths.
The government was forced to revise its plans, making it difficult to meet targets under a four-year $3.6billion (£2.7billion) IMF programme. It had to end the programme early, forfeiting around $850million (£638 million), and is currently negotiating a new one.
Both East African countries are set to face the challenges of trade wars, a factor that prompted the IMF to downgrade its global growth predictions on Tuesday from 3.3% to 2.8%.
The IMF has warned that increased US tariffs are likely to cause a demand shock among its trading partners, impacting both production and prices.
The GDP of Sub-Saharan Africa is projected to increase by 3.8% this year, marking the slowest rate since the Covid-19 pandemic in 2020 and approximately 0.4% below the previous forecast, according to the IMF.
