As Kenya inches closer to the reading of its 2025/26 national budget, the World Bank has raised fresh concerns over the country’s mounting debt burden, warning that austerity measures alone may not be sufficient to steer the country away from the looming threat of default.
On May 27, 2025, during a high-level briefing, Qimiao Fan, the World Bank Division Director for Kenya, sounded the alarm on the economic dangers of sovereign default. He emphasized that Kenya is currently classified as being at a “high risk of default,” a situation that could bring far-reaching and adverse economic consequences.
“I’d like to offer a few words of caution: default will not be an easy solution for Kenya. In fact, we have seen that default is not an effective solution for anyone,” Fan stated. He cited global data showing that sovereign defaults reduce GDP per capita by an average of 8.5% and raise poverty levels by 6% within five years.
In response, Kenya’s newly appointed Treasury Cabinet Secretary, John Mbadi, disclosed that the government has initiated aggressive fiscal consolidation measures. These include Ksh.120 billion in expenditure cuts for the 2025/26 fiscal year, aimed at reducing the fiscal deficit to below 5.3%. The Treasury projects Ksh.559 billion in non-tax revenue, but with a total budget deficit of Ksh.877 billion, Kenya still plans to borrow Ksh.284 billion externally and Ksh.592 billion domestically.
Despite these bold steps, the World Bank remains cautious. Economist Jorge Tudela Pye emphasized that while austerity is a key component, structural and governance reforms are critical for long-term fiscal sustainability. “If Kenya’s fiscal performance is to improve meaningfully, there must be a broader economic transformation,” he said.
With shrinking wages and a rigid budget structure, the World Bank warns that time is running out for Kenya to make the fundamental changes required to regain fiscal stability. The coming weeks will be crucial as the government finalizes and presents the 2025/26 national budget amid mounting internal and external pressure.
