Following a new forecast by the International Monetary Fund (IMF), Kenya is projected to emerge as East Africa’s largest economy in 2025.
The IMF estimates that Kenya’s gross domestic product will rise to $132 billion ahead of Ethiopia’s projected GDP of $117 billion.
The change is driven by contrasting macroeconomic developments in both countries.
Ethiopia’s decision to devalue its currency as part of foreign exchange liberalisation significantly reduced the dollar value of its economy.
The birr has lost more than half of its value against the dollar since the exchange rate adjustment began.
While the reform enabled Ethiopia to unlock multilateral support, including $3.4 billion from the IMF and $16.6 billion from the World Bank, the immediate impact has been a weaker external position and a lower dollar-denominated GDP.
The currency shift also opens the door to external debt restructuring talks involving nearly $29 billion.
On the other hand, Kenya has maintained a relatively stable policy stance with the Kenyan shilling appreciated by 21 percent in 2024, supported by a combination of higher diaspora remittances, improved export earnings, and successful access to international capital markets.
The country’s $1.5 billion Eurobond issued earlier this year boosted reserves and helped anchor investor sentiment.
Despite facing internal challenges linked to its fiscal reform agenda, Kenya’s external balance remains resilient.
The strengthening of the shilling combined with nominal GDP growth has lifted Kenya above Ethiopia in the latest IMF economic outlook.
The IMF revised Kenya’s 2025 growth forecast slightly downward to 4.8 percent, citing fiscal pressures and weaker global demand.
Ethiopia’s projection was marginally raised to 6.6 percent as reforms begin to stabilise internal markets.
Sub-Saharan Africa’s regional output is expected to grow by 3.8 percent in 2025, marking the slowest expansion since the COVID-19 pandemic.
Trade frictions and monetary tightening in advanced economies continue to weigh on emerging market prospects.
The IMF noted that currency performance and external adjustments will remain key indicators of economic strength in a volatile global environment.
With Kenya now leading the region by GDP size, analysts expect increased attention on its monetary policy stance, debt profile, and ability to sustain growth momentum under tightening global financial conditions.
Both Kenya and Ethiopia will need to balance reform execution with economic stability to navigate ongoing global headwinds while consolidating their positions within the East African economic landscape.
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