Kenya is on track to surpass Ethiopia as the largest economy in East Africa by 2025, as projected by the International Monetary Fund (IMF). This shift is attributed to Ethiopia’s decision to devalue its currency, the birr, last year in an effort to stabilize its economy and initiate debt restructuring talks. The IMF forecasts Kenya’s GDP to reach $132 billion in 2025, surpassing Ethiopia’s projected $117 billion.
Ethiopia’s currency devaluation, which saw the birr depreciate by more than 55%, enabled the country to secure a $3.4 billion IMF loan package and an additional $16.6 billion in financial support from the World Bank. This move also paved the way for negotiations with international creditors to restructure a significant portion of Ethiopia’s $28.9 billion external debt.
While these financial injections provide relief for Ethiopia’s struggling economy, the sharp currency depreciation has led to an increase in import costs, contributing to inflationary pressures in a country already facing challenges from conflict and climate-related issues.
In contrast, Kenya has maintained relative macroeconomic stability, supported by its diversified economy, robust financial sector, and stable exchange rate. The Kenyan shilling appreciated by 21% last year, making it the best-performing currency globally in 2024.
Despite Kenya’s economic resilience, the country has faced its own challenges. President William Ruto’s administration encountered backlash over a tax hike and deficit-reduction strategy in 2023, leading to widespread protests. The economic impact of these protests was significant, with the Nairobi Securities Exchange reporting a loss of approximately $600 million in investor wealth within two weeks.
Both Kenya and Ethiopia will need to navigate their economic futures amidst rising global uncertainty. Trade tensions, particularly involving the United States, have prompted the IMF to revise its global growth forecast for 2025 from 3.3% to 2.8%. The IMF has cautioned that higher U.S. tariffs could dampen demand among trading partners, resulting in slower output and downward pressure on prices.
As Kenya and Ethiopia continue on their economic trajectories, they will need to adapt to evolving global economic conditions while addressing internal challenges to sustain growth and stability.
