According to the latest projections from the International Monetary Fund (IMF), Kenya’s GDP is expected to reach $132 billion, surpassing Ethiopia’s projected $117 billion. This shift in the regional economic landscape reflects differing policy decisions and macroeconomic conditions in the two nations.
Ethiopia’s recent decision to devalue its currency, the birr, by over 55% in 2024 unlocked $3.4 billion in IMF support and $16.6 billion in World Bank funding. These measures aim to help restructure debt and stabilise the economy. However, the move has resulted in a sharp rise in inflation and import costs, adding further strain to a nation already battling internal conflict and climate disruptions, according to the IMF.
In contrast, Kenya has demonstrated relative macroeconomic resilience. The Kenyan shilling appreciated by 21% in 2024, making it the world’s best-performing currency, according to market analysts. This surge was driven by a successful $1.5 billion Eurobond issuance, record-high diaspora remittances of $4.94 billion, and strong growth in agricultural and manufacturing exports.
Despite its strong economic fundamentals, Kenya has faced domestic challenges. The government’s controversial Finance Bill 2024, which introduced sweeping tax reforms, sparked widespread protests and led to substantial investor losses. As a result, the government withdrew from a $3.6 billion, four-year IMF programme, raising concerns over policy stability.
Nevertheless, Kenya’s economy remains relatively stable, bolstered by its diversified structure and improved investor confidence.
Ethiopia, long considered East Africa’s economic powerhouse due to its large population and ambitious infrastructure projects, has recently faced economic setbacks that have revealed vulnerabilities in its development model.
On the other hand, Kenya’s open-market policies, diversified revenue streams, and currency stability have strengthened its position in the region.
While both nations face economic challenges amid global trade tensions and inflationary pressures, Kenya appears better positioned for the near term.
If current trends continue, Kenya is set to officially become East Africa’s largest economy in 2025, signalling a major shift in the region’s economic dynamics.
