Kenya A Fragile Fiscal and External Equilibrium

Kenya's economic outlook is characterized by a widening current account deficit and stalled fiscal consolidation following the Iran conflict-induced energy shock. Despite strong reserve buffers, the country's fragile fiscal state and upcoming 2027 elections create downside risks for the currency and sovereign credit.

Key Takeaways

• 1.Kenya faces fiscal and external pressures, with a current account deficit projected to widen to 3.5% of GDP in 2026 due to higher oil import costs.
• 2.Fiscal consolidation has stalled, and achieving the 5.4% of GDP deficit target for FY 2026/27 appears unlikely given political constraints and historical revenue underperformance.
• 3.Sufficient FX reserve buffers and moderate near-term debt redemptions contain immediate liquidity risks, likely delaying a new IMF program until after the August 2027 elections.

Table of Contents

• Kenya — A Fragile Fiscal and External Equilibrium
• Kenya Entered the Iran Shock Weaker Than Its SSA Peers
• Kenya's External Balance to Deteriorate in 2026, But Shielded by Strong Buffers
• Current Account to Widen in 2026 Before Normalising to Pre-War Trend
• Composition of Financing Needs Shifting from Current Account to Debt Repayments
• Fiscal Outlook to Continue to Muddle-Through...
• Debt Projected to Edge Down, But Fragile Stabilisation Heading Into the Election
• Current Account and Fiscal Strains Cushioned by Buffers and World Bank Financing, Easing the Case for an IMF Programme
• Tight Credit Spreads and Risks Tilted Towards Shilling Depreciation
• Conviction Macro Views
• Macroeconomic forecasts

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