Kenya's economy is expected to grow at a slower pace over the next two years after the World Bank lowered its growth forecast, pointing to rising global uncertainty, higher energy prices and the effects of the recent conflict in the Middle East as the main factors weighing on the country's outlook.
In its latest Kenya Economic Update released on Thursday, the World Bank projected that Kenya's economy will grow by 4.3 per cent in 2026 before improving slightly to 4.4 per cent in 2027.
The new forecast is lower than the lender's earlier projection of 4.9 per cent made in November and also falls below the government's estimate of five per cent growth this year.
According to the World Bank, the revision reflects the economic effects of the recent conflict in the Middle East, which has pushed up global energy prices and created more uncertainty in the global economy, affecting Kenya's growth prospects.
The government remains more optimistic about the country's performance. While presenting the 2026-27 Budget in Parliament last month, Treasury Cabinet Secretary John Mbadi said the economy is expected to expand by five per cent this year before rising to 5.2 per cent in 2027.
Official data shows that Kenya's economy grew by 4.6 per cent in 2024.
The World Bank said higher fuel prices and growing uncertainty are expected to affect businesses and households in the coming months.
"In the short term, higher global energy prices and increased uncertainty are expected to raise production costs, weaken private investment growth and weigh on household purchasing power through higher commodity prices and moderating remittance inflows," the lender said.
Despite the challenges, the World Bank said several local factors are expected to help reduce the impact of external shocks. These include good agricultural harvests, lower interest rates, a stable exchange rate and a gradual recovery in lending to the private sector.
Kenya has remained among East Africa's fastest-growing economies, posting annual growth of about five per cent in recent years despite global economic challenges.
However, the lender warned that the effects of the Middle East conflict could continue to affect the economy through higher fuel prices and rising transport costs caused by disruptions around the Strait of Hormuz.
It said the increase in fuel prices is likely to drive up the cost of other essential goods and services, making life more expensive for many households across the country.
The report also warned that rising prices could increase poverty levels. According to the World Bank, the conflict could raise Kenya's poverty rate by between two and 4.5 percentage points, pushing an additional one million to 2.4 million people below the international poverty line of three dollars per person per day.
Apart from global risks, the World Bank also pointed to domestic challenges that could affect economic growth over the next two years. These include climate-related events such as droughts and floods, as well as political uncertainty ahead of the 2027 General Election.
Kenya is expected to hold its next General Election in August 2027.
"Approaching elections may delay private investment decisions, increase policy uncertainty and slow implementation of structural reforms," the World Bank said.
"At the same time, pre-election spending pressures could weaken fiscal discipline and delay planned consolidation efforts, while heightened political tensions could adversely affect business and consumer confidence."
Even with these risks, the World Bank said it continues to support Kenya's economic reform programme.
In late June, the lender approved a 750 million dollar budget support loan together with a 500 million dollar sustainability-linked financing facility. The funding is expected to help Kenya reduce its reliance on costly domestic borrowing while supporting fiscal and structural reforms.
The World Bank said the financing will help strengthen public finances, support macroeconomic stability and create room for investment in priority sectors as the government works to sustain economic growth in a difficult global economic environment.