KENYA’S 2025 ECONOMIC OUTLOOK: FISCAL EXPANSION, INFRASTRUCTURE GROWTH, AND CURRENCY STABILITY

Kenya’s economic narrative in 2025 is largely shaped by a bold fiscal policy aimed at revitalizing development and social welfare. The government has rolled out a KSh 4.2 trillion ($33 billion) budget for the 2025/26 fiscal year, marking a significant increase in public expenditure. The budget focuses on strategic investments in infrastructure, healthcare, education, and poverty alleviation programs, signaling a renewed push to boost economic inclusivity and productivity. This fiscal strategy comes after the administration withdrew proposed tax hikes in response to public backlash, choosing instead to fund growth through external borrowing and increased efficiency in revenue collection.

A central pillar of the government’s economic agenda is infrastructure development. With an eye on unlocking economic potential across counties, the state has secured $600 million in short-term commercial financing to accelerate road construction and rehabilitation projects. The Ministry of Transport and Infrastructure has emphasized that improved connectivity is essential for regional trade, agricultural access, and job creation. However, the funding gap remains large, and officials are now exploring an additional $1.5 billion through syndicated loans or bond issues to sustain ongoing infrastructure programs.

These ambitious infrastructure plans are not without challenges. Land disputes, especially in agriculturally rich areas, threaten to slow progress. In Nandi County, a dispute between British-owned Eastern Produce Kenya and local communities has erupted over claims of ancestral land, with over 100 residents occupying 350 acres of tea plantation. The standoff has drawn national attention, sparking debates on historical land injustices and foreign ownership of large tracts of land. As infrastructure developments intersect with sensitive land issues, the government is under pressure to address historical grievances while maintaining investor confidence.

In the energy sector, a major shift is unfolding with Tullow Oil’s planned exit from Kenya. The UK-based firm intends to sell its assets to Gulf Energy Ltd for a minimum of $120 million, citing high infrastructure costs and prolonged delays in developing the Lokichar oilfield. While the sale opens the door for renewed investment from regional players, it also underscores the difficulties foreign investors face in Kenya’s extractive industries. The government will need to revisit policy frameworks to attract and retain investment in critical sectors like energy.

Despite these domestic challenges, Kenya's external trade environment is improving. The current account deficit is now projected at 2.8% of GDP—an improvement from earlier forecasts of 3.8%. This positive outlook is buoyed by strong diaspora remittances, a rebound in horticultural exports, and a growing services sector. Improved trade balances are also supported by increased export competitiveness and reduced import bills, thanks in part to currency stabilization efforts by the Central Bank.

The Kenyan shilling has exhibited remarkable strength in 2025, currently trading at KES 129.7 per USD. This stability has helped tame inflation, which stands at 3.6% as of March, and has bolstered investor confidence. The Central Bank’s decision to lower interest rates to 10.0% further signals a pro-growth monetary stance, encouraging credit uptake by businesses and households. With fiscal expansion, targeted infrastructure projects, and currency stability working in tandem, Kenya’s economy is poised for a strong recovery and inclusive growth in the near term.