The International Monetary Fund (IMF) is projecting that Kenya will become East Africa’ s largest economy.
This comes after the multilateral lender projected that Kenya’ s Gross Domestic Product will surge to $ 117 billion (Ksh 17. 16 trillion) in 2025, surpassing Ethiopia’ s projected $117 billion ( Ksh 15. 17 trillion).
One of the main reasons Kenya is set to overtake Ethiopia is the devaluation of Ethiopia’ s currency.
The decline in the value of Ethiopia’s currency, known as the birr, is linked to a wider initiative aimed at stabilizing the economy and progressing with long-overdue debt restructuring discussions.
Ethiopia’s decision to allow its currency, the birr, to devalue by more than 55% contributed to obtaining a loan of Ksh 440.9 billion from the IMF and Ksh 2.15 trillion in assistance from the World Bank.
Kenya to Overtake Ethiopia as East Africa’s Largest Economy
Meanwhile, Kenya has kept its economy fairly stable and its shilling strengthening against the dollar despite some financial challenges.
The Kenyan shilling experienced a rise of approximately 21% over the past year, positioning it as one of the top-performing currency globally in 2024 according to IMF.
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Some of the factors that have led to the Kenyan shilling strengthening against the dollar, as revealed by the CBK governor in 2024, include:
First, the government successfully bought back a $2 billion Eurobond that was due in June 2024. They did this by issuing a new $1.5 billion Eurobond in February 2024. This move increased investor confidence and eased worries about Kenya’s ability to pay its debts, which helped stabilize the shilling.
Factors that Have led Kenyan Shilling to Appreciate
Second, the CBK started interventions in the interbank foreign exchange market shortly after Dr. Thugge became governor in June 2023.
They implemented reforms to stabilize the market, such as revitalizing the interbank market, lowering the minimum tradeable amount from $500,000 to $250,000, and using an Electronic Brokerage System to improve liquidity and transparency.
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Third, strong inflows from diaspora remittances supported the shilling. These remittances increased by 6.1% to over KSh 48.9 billion in the year ending June 2023.
In addition, Kenya’s export earnings from sectors like coffee, horticulture, and tea remained strong. Disbursements from international lenders, including $684 million from the International Monetary Fund, $400 million from the Trade Development Bank, and expected World Bank funds of $1.5 billion, have also contributed to strengthening the shilling.
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