Kenya Set to Surpass Ethiopia as East Africa’s Largest Economy in 2025 – IMF

Kenya is poised to overtake Ethiopia as East Africa’s largest economy in 2025, according to the latest outlook from the International Monetary Fund (IMF).

The IMF projects Kenya’s GDP will reach US$132 billion next year, up from US$121 billion in 2024. In contrast, Ethiopia’s GDP is expected to fall sharply from US$143 billion to US$117 billion, largely due to a steep currency devaluation.

Ethiopia’s decision to liberalize its exchange rate in July led to a 55 percent depreciation of the birr. While this unlocked US$3.4 billion in IMF funding and US$16.6 billion from the World Bank, it also triggered debt restructuring talks for nearly half of Ethiopia’s US$28.9 billion external debt.

Meanwhile, Kenya’s economic momentum has been buoyed by a 21 percent rally in the shilling – currently the world’s best-performing currency – alongside a successful US$1.5 billion Eurobond issuance, which boosted the country’s reserves.

Robust remittances and exports further reinforced Kenya’s economic position. Kenyans abroad sent home a record US$4.94 billion in 2024, an 18 percent increase from the previous year, with the U.S. accounting for over half of the total.

Merchandise exports also hit a historic high of US$8.25 billion, led by strong performance in agriculture and manufacturing.

Despite recent unrest over the Finance Bill 2024 and unmet tax targets that forced the government to exit a US$3.6 billion IMF program early – sacrificing US$850 million – Kenya remains on a growth trajectory. Talks for a new IMF arrangement are underway.

However, global risks loom. The IMF warns that escalating trade tensions, especially rising U.S. tariffs, could dampen demand globally.

Sub-Saharan Africa’s growth is now forecast at 3.8 percent – its slowest pace since the pandemic and down 0.4 percentage points from earlier projections.