Kenya — A Fragile Fiscal and External Equilibrium

Research evidence excerpt

Kenya — A Fragile Fiscal and External Equilibrium

Economics Research

1 July 2026 | 5:50PM BST

CEEMEA ECONOMICS ANALYST

n Kenya’s fiscal and external balances have improved in recent years but remain Ludovica Ambrosino

+44(20)7051-9222 |

weaker than regional peers, with twenty years of accumulated twin deficits marialudovica.ambrosino@gs.com

Goldman Sachs International

implying a large stock of external liabilities as well as public debt of around 70%

Andrew Matheny

of GDP. +44(20)7051-6069 |

andrew.matheny@gs.com

n With respect to the external position, we project a widening of the current

account deficit from 2.5% of GDP in 2025 to 3.5% of GDP in 2026, on the back of

higher (average) oil prices, and a gradual decline in FX reserves to around

US$12bn by year-end (from the pre-war peak of US$14.6bn and around

US$13bn currently).

n Kenya’s external financing needs have shifted in recent years from current

account funding towards debt service (as the trade balance and remittances

have improved), and upcoming debt redemptions are limited thanks to proactive

liability management. Thus, with currently ample FX reserves, our baseline is for

external pressures to remain contained.

n On the fiscal side, consolidation has stalled since 2024 amid weak revenue

mobilisation, leaving a small primary deficit. We are sceptical that the deficit

target of 5.4% of GDP for FY 2026/27 will be achieved, but the current fiscal

stance should nonetheless marginally stabilise debt under a standard debt

sustainability analysis (DSA) framework. That said, Kenya remains vulnerable to

external or domestic shocks, to which there is little fiscal policy space to respond,

in our view.

n We therefore remain sceptical that a new IMF programme will be agreed before