By Ebi Kesiena
Kenya is poised to overtake Ethiopia as East Africa’s largest economy by 2025, according to new projections by the International Monetary Fund (IMF). The shift follows Ethiopia’s significant currency devaluation, which has reshaped the region’s economic outlook.
The IMF estimates that Kenya’s gross domestic product (GDP) will rise to $132 billion next year, surpassing Ethiopia’s projected $117 billion. This milestone reflects diverging economic strategies and conditions in the two nations.
Ethiopia devalued its currency, the birr, by more than 55% in 2024, unlocking $3.4 billion in IMF support and $16.6 billion in World Bank funding to help restructure debt and stabilise its economy. However, the move triggered soaring inflation and higher import costs, compounding challenges from ongoing internal conflict and climate-related disruptions.
In contrast, Kenya has demonstrated relative macroeconomic resilience. The Kenyan shilling appreciated by 21% in 2024, becoming the world’s best-performing currency. This strength was buoyed by a successful $1.5 billion Eurobond issuance, record diaspora remittances of $4.94 billion, and strong agricultural and manufacturing exports.
Despite facing unrest over the controversial Finance Bill 2024, which introduced sweeping new taxes and provoked mass protests, Kenya’s economy remains relatively stable. Although the government’s decision to withdraw from a $3.6 billion IMF programme raised concerns about policy continuity, investor confidence has largely remained intact due to Kenya’s diversified economy.
For years, Ethiopia had been regarded as East Africa’s economic powerhouse, leveraging its large population and heavy investment in infrastructure. However, recent economic turbulence has exposed weaknesses in its development model.
Meanwhile, Kenya’s open-market policies, diversified revenue streams, and currency stability have strengthened its regional standing. Although both nations still face risks from global trade tensions and inflation, Kenya appears better positioned for near-term growth.
If current trends persist, Kenya will officially claim the title of East Africa’s largest economy in 2025.
