NAIROBI, Kenya – August 25, 2025 — Kenya’s economic recovery faces growing risks from fiscal strain and climate shocks, Treasury Cabinet Secretary John Mbadi has warned.
Climate Threats to Growth
Speaking at the launch of the FY 2026/27 budget process, Mbadi noted that droughts and floods are increasingly undermining agriculture, infrastructure, and food security. He said these extreme weather patterns could derail the government’s projected 5.3% GDP growth.
Moreover, he added that global trade disruptions and financial volatility may worsen the situation. UNCTAD and the IMF have both warned that developing economies remain exposed to such shocks.
“Kenya’s economic outlook faces both external and domestic risks. Further, extreme weather may negatively impact agriculture, infrastructure, and food security,” Mbadi said.
Debt Concerns Rise
Kenya’s public debt now stands at 65–68% of GDP, far above the sustainable level of 55% recommended by the IMF. Consequently, the government faces rising repayment pressure.
According to the Treasury, debt servicing will jump from Sh495 billion in 2025 to Sh822 billion in 2026. To ease this burden, officials are weighing bond buybacks and extending debt maturities. These fiscal maneuvers, however, carry their own risks.
In addition, concerns over Kenya’s access to international capital markets have intensified, as investors demand stronger reforms before committing fresh funds.
Economy Shows Resilience
Despite the risks, the economy has shown some resilience. Data from the Kenya National Bureau of Statistics (KNBS) revealed that GDP grew by 4.9% in the first quarter of 2025.
This expansion was mainly driven by agriculture and manufacturing. Meanwhile, the hospitality and ICT sectors slowed, limiting overall growth momentum.
Even so, Mbadi said macroeconomic stability and steady performance in key sectors have boosted business confidence. Investors remain optimistic, though they are watching debt management closely.
What Lies Ahead
Still, experts caution that without climate adaptation and fiscal discipline, Kenya risks falling into a cycle of high borrowing and climate-driven disruptions. Therefore, policy action in both areas is urgent.
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