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Country Risk Report

Kenya

Last update – January 2026

Country rating 


SENSITIVE RISK FOR ENTERPRISE 
Economic risk


Serious risk of payments disruption
Business environment risk
Moderate risk of payments disruption
Political risk


Moderate risk of payments disruption
Commercial risk
Moderate risk of payments disruption
Financing risk

Serious risk of payments disruption
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Form of state
 Presedential Republic
Head of government
 William Ruto (President)
Next elections
 2027 (presidential and legislative)

Strengths & weaknesses

  • GDP growth is driven by a thriving services sector, especially ITC, finance as well as agriculture 
  • Trade gateway to the East African market 
  • Ambitious structural reform government program to accelerate FDIs, infrastructure spending, optimize subsidies and redress structural imbalances 
  • Liquidity risks given public debt surged over the last decade , half in foreign currency 
  • Elevated political risk due to increased poverty, social tensions and security issues 
  • Vulnerable to external risks such as regional security and climate change 

Economic overview

Cyclical risks

Kenya’s economy has showed resilience with growth hovering around +4.8% in 2025. Growth is expected to ease in 2026 (+4.5% y/y), then hold up through 2027 at +4.7%. In 2025, Kenya’s economic growth was underpinned by a recovery on multiple fronts. Agriculture, which contributed 24.4% of GDP in 2024, remains vital yet vulnerable to climate shocks. Tea output declined by -10.8% y/y in 2025 despite government fertilizer support, reflecting persistent irrigation deficits. For 2026, the tea output growth rate is estimated at 12.67%. Industry, accounting for 18.1% of GDP, continues to grapple with high production costs and import competition, though construction has emerged as a key growth driver, and in recent months a gold mine discovery raised hopes for increased mining output in the future. It is the services sector that will anchor economic expansion, propelled by urbanization, rising household demand and digitalization, with robust growth anticipated in finance, ICT, transport, tourism, healthcare and education

This momentum was further supported by record-high foreign exchange reserves, thanks to increased exports in hard currency. In 2025, inflation in Kenya was on a downward trajectory from the 7.7% reached in 2023. It is likely to inch slightly higher to 4.5% in 2026, mainly driven by food prices. Kenya Central Bank lowered interest rates by 25bps to 9% in late 2025, and a further cut is expected in 2026. In 2026, risks remain elevated due to fiscal slippage, debt pressures and structural weaknesses, notably in the labor market. 

Financing risks

Kenya’s fiscal vulnerabilities remain pronounced. The deficit widened to 5.9% of GDP in 2024/25, compared to a budget target of 4.3%, while public debt climbed to 68.8% of GDP in 2024/25, with domestic debt representing 53.6% of the total, leaving the country at high risk of debt distress and threatening fiscal-consolidation efforts. Debt servicing remains elevated (5.8% of GDP in 2024/25) and half of liabilities are denominated in foreign currency, leaving Kenya exposed to exchange-rate risks. Commercial banks face significant sovereign debt exposure, with public debt accounting for 25% of total bank assets.

Kenya hopes to revisit the Eurobond market in early 2026 and is planning a USD200mn–500mn diaspora bond to raise funds from Kenyans abroad. Kenya is awaiting a World Bank ruling on the reinstatement of a USD750mn concessional loan, which was suspended in July following the government’s failure to enact a governance reform bill. Talks with the IMF are ongoing, but political resistance to tax hikes and IMF demands for a freer float of the shilling may delay agreement until after the 2027 elections.

The Kenyan government is adopting innovative financing strategies to reduce debt-servicing costs and mobilize funds for infrastructure. Notably, China agreed to convert a costly floating-rate US dollar loan into renminbi, expected to save about USD215mn annually. Kenya also secured a USD1.5bn facility (with a 8.25% interest rate) from the UAE in 2025, and the government plans bonds backed by import and road levies to fund infrastructure projects. In late 2025, President Rutto agreed on a USD1bn debt-for-food swap deal with the US, replacing older and costly existing loans with cheaper financing while the savings will be invested in food-security programs. Finally, the Kenyan government announced the sale of a 15% stake in Safaricom, one of the country’s most important companies which enables M-Pesa (a mobile money payment system spread throughout all levels of the country’s economy), a deal worth USD1.6bn.

Structural business environment risks

Kenya’s regulatory and legal environment remains restrictive to business operations compared with other middle‑income countries. Weak competition persists, with the government holding stakes in more than 200 business entities. Loss-making state‑owned enterprises absorb substantial fiscal transfers, crowding out private investment. High tariffs, widespread non‑tariff measures and persistent barriers to foreign investment continue to weigh heavily on Kenya’s productivity and competitiveness. Domestic companies are shielded for international competition. Average applied tariff rates remain well above peer economies, while import quotas, permits and other non‑tariff restrictions add significant compliance costs, estimated at over 40% ad valorem equivalent. Sectoral inefficiencies, including fertilizer subsidies benefiting select firms, costly electricity contracts and limited telecom competition, continue to weigh on industrial competitiveness and consumer welfare.

Commercial banks operate in a challenging operating environment characterized by tight cashflows, weak business activity and mounting public sector arrears. Non-performing loans climbed to 17.6% of gross loans by end‑August 2025, up from 16.4% at end‑2024. However, robust capital buffers and strong liquidity are enabling banks to withstand the pressures from rising NPLs. Although the weighted average lending rate for commercial bank loans has eased in line with official rate cuts, it remains elevated at 15.1% in September 2025.

Under the current government, Kenya made some progress toward private enterprise and infrastructure, driven by a privatization program and public investment in power and transport. Parliament has approved the privatization of the Kenya Pipeline Company (KPC), with others to follow.

Kenya, Sub‑Saharan Africa’s fourth‑largest and one of its most diverse economies, is positioning itself as a logistics, transport and financial hub in East Africa. This transformation is underpinned by infrastructure upgrades, fintech innovation and the development of special economic zones, alongside a vibrant services sector that continues to drive growth.

Political risks

Kenya’s political trajectory is set to remain turbulent in the near term, but President William Ruto is in a strong position ahead of the 2027 elections. His United Democratic Alliance (UDA) performed well in byelections on November 2025. The death of opposition leader Raila Odinga in October 2025 will have deep consequences to the political system. The Orange Democratic Movement (ODM), currently in a coalition with UDA, is facing internal turmoil and the risk of fragmentation, as some members of the leadership oppose the current alliance with President Ruto.

Domestic challenges persist as violent protests in 2024–25 over tax increases and police tactics highlighted deep social inequalities and constrained fiscal policy options. Any renewed austerity measures risk sparking further unrest, particularly among younger voters. At the same time, regional instability in Somalia, Sudan and Ethiopia continues to pose latent spillover risks.

Internationally, Kenya seeks to balance relations among its major partners while advancing regional integration within the East African Community (EAC) and across Africa. In recent months, tensions with Tanzania have soured after new Tanzanian trade regulations prohibit non-citizens from engaging in certain business sectors which greatly impacts Kenya and other EAC countries. Ongoing talks should reach a resolution.  Ties with the US remain strategically important: Kenya is the only Sub‑Saharan African country designated a major non‑NATO ally. Relations with the EU were strengthened in 2023 through the signing of an Economic Partnership Agreement, granting duty‑free and quota‑free access to EU markets and bolstering investor confidence. Kenya’s partnership with China deepened in 2025, highlighted by USD1bn in new investment deals and renewed funding commitments for large‑scale infrastructure projects, including the Standard Gauge Railway. Finally, the Rutto administration has gained international attention with his active diplomacy in dealing with the DRC-Rwanda, as well as with the UN mission to Haiti.

Trade structure by destination/origin

(% of total, 2024)

Trade structure by product

(% of total, 2024)

Contact 

Lluis Dalmau
Allianz Trade
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Contact Allianz Trade
Economic Research Team
Send email