Kenya is expected to overtake Ethiopia as East Africa’s largest economy in 2025, according to new projections by the International Monetary Fund.
With Kenya’s GDP forecast at $132 billion compared to Ethiopia’s $117 billion, the shift comes amid economic adjustments, including the recent devaluation of the Ethiopian birr.
According to bloomberg.com, after tightly controlling the value of the birr for half a century, Ethiopia liberalized the exchange rate system in July. The currency then depreciated more than 55% against the dollar.
It is forecast to overtake Ethiopia’s this year
The move enabled the Horn of Africa nation to clinch a $3.4 billion loan from the IMF and $16.6 billion from the World Bank. It also opened the door to talks with creditors on restructuring at least half of its $28.9 billion in external debt.
In contrast, the Kenyan shilling strengthened around 21% last year, making it the world’s best-performing currency.
The shilling was further bolstered when Kenya sold a $1.5 billion bond in February, allowing it to increase its gross reserves. Higher diaspora remittances and exports receipts over the past year have also helped, according to Kenya’s Treasury.
Still, the nation is not without problems. An aggressive plan to hike taxes and lower the budget deficit sparked protests last year that left at least 60 people dead. The government was forced to backtrack and its new plans made it difficult to meet targets under a four-year $3.6 billion IMF program. It had to prematurely terminate the program, forgoing about $850 million, and is in talks for a new one.
Both East African nations will be tested by trade wars, which led the IMF to lower its forecasts for world growth on Tuesday to 2.8% from 3.3% in 2025.
It also cut its outlook for Kenya’s growth this year to 4.8% from 5% while raising Ethiopia’s slightly to 6.6% from 6.5%.
The IMF said higher US tariffs are expected to trigger a demand shock among America’s trading partners, hitting output and prices.
Sub-Saharan Africa’s gross domestic product is expected to rise 3.8% this year, the slowest pace since the Covid-19 pandemic of 2020 and about 0.4 percentage points lower than the previous forecast, the IMF said.
