Kenya is poised to become East Africa’s largest economy by 2025, overtaking long-time rival Ethiopia, according to new projections by the International Monetary Fund (IMF). The IMF forecasts Kenya’s GDP will reach $132 billion, surpassing Ethiopia’s projected $117 billion. This shift in regional economic dominance reflects the divergent macroeconomic strategies and outcomes in the two countries.
In 2024, Ethiopia devalued its currency, the birr, by over 55% to qualify for $3.4 billion in IMF support and an additional $16.6 billion from the World Bank, part of a larger effort to restructure its mounting external debt and revive its economy. However, the move triggered a spike in inflation, increased import costs, and worsened living conditions, especially in the aftermath of the Tigray conflict and recurrent droughts and floods. The country’s heavy investments in infrastructure over the past decade boosted early growth but have now exposed vulnerabilities in its debt-dependent development model, with over 56% of public debt held externally
Meanwhile, Kenya’s macroeconomic management has drawn praise despite domestic unrest. The Kenyan shilling appreciated by 21% in 2024, making it the world’s best-performing currency, according to analysts. However, Nairobi’s controversial Finance Bill 2024, which introduced new taxes, ignited nationwide protests, prompting the government to exit a $3.6 billion IMF program, raising concerns over fiscal discipline.
Despite this, Kenya’s diverse economy—spanning agriculture, tourism, services, and fintech—has provided relative stability amid a global slowdown. The IMF has revised global growth for 2024 down to 2.8%, but Kenya is expected to grow at 5%, well above the regional average.
Ethiopia, once considered the engine of East Africa, is grappling with soaring inflation, rising youth unemployment, and ongoing insecurity in parts of the country. Kenya’s market-led reforms, stronger institutions, and investment in innovation and infrastructure have made it more attractive to investors.
If trends continue, Kenya’s overtaking of Ethiopia will reshape the region’s economic landscape, with implications for trade blocs like the East African Community (EAC) and the African Continental Free Trade Area (AfCFTA). The IMF notes that while both economies face external vulnerabilities, Kenya’s policy flexibility and diversified economic base place it in a stronger position heading into 2025.
