The World Bank has cut its projection for Kenya’s economic growth in 2026 to 4.3%, pointing to the effects of the conflict in the Middle East.
In a report released on Thursday, July 9, 2026, the lender said the new forecast is 0.6 percentage points lower than the estimate it issued in late 2025, before the dispute involving the US, Israel, and Iran. The World Bank attributed the downgrade to higher global fuel prices that have slowed Kenya’s recovery by driving up transport costs, food prices, and the overall cost of doing business.
The report noted that increased fuel costs have pushed transport fares higher, contributed to rising food prices, and raised production expenses for manufacturers. Despite the revision, the World Bank expects Kenya’s growth to improve gradually to about 4.4% in 2027.
“Growth is projected at 4.3% in 2026 before gradually strengthening toward 4.4% over the medium term. This represents a downward revision of about 0.6 percentage points relative to pre-conflict projections published in late 2025, reflecting the impact of the Middle East conflict on Kenya’s macroeconomic outlook,” the report stated.
The World Bank added that in the near term, higher global energy prices and growing uncertainty are likely to increase production costs, weaken private investment growth, and reduce household purchasing power through higher commodity prices, alongside moderating remittance inflows.
Even so, the World Bank said several parts of Kenya’s economy are expected to stay resilient, particularly agriculture. It also pointed to factors that could help cushion growth, including relative stability of the shilling, a loosening of monetary policy, and improved lending to the private sector.
At the same time, the lender warned that external shocks could undo some of the country’s progress in reducing poverty. It projected that Kenya’s poverty rate may rise by between 2% and 4.5%, depending on how long higher fuel costs continue to feed into the prices of other goods and services. That could mean an estimated 1 million to 2.4 million additional Kenyans falling below the poverty line.
The World Bank linked the pressure on the economy to the conflict in the Middle East, which pushed fuel prices in Kenya to record highs. In May, EPRA set pump prices in Nairobi at Ksh214.25 per litre for Super Petrol and Ksh242.92 per litre for diesel. Diesel prices later fell to Ksh232.86 after protests by matatu operators.
To protect consumers from the impact of the higher pump prices, the government reduced Value Added Tax (VAT) on fuel from 16% to 8%. The report said current prices in Nairobi stand at Ksh214.03 for a litre of Super Petrol and Ksh222.86 for diesel.
The World Bank estimated that the VAT cut reduced government revenue by between Ksh11 billion and Ksh22 billion in the last quarter of the 2025/26 financial year, equivalent to 0.05% to 0.1% of GDP. It said the measure reflects the difficult choices facing fiscal policy amid external shocks, since efforts to protect purchasing power and curb inflation could further tighten the already limited fiscal space.
The report also said Value Added Tax (VAT) was among the biggest underperformers in revenue collection.
It noted that the largest gaps against revenue targets came from income tax and VAT, which fell short by a combined 0.8 percentage points as a share of GDP. The World Bank added that these two taxes remain the main sources of revenue for Kenya, accounting for 78.4% of total tax revenue and 57% of total revenue, including grants, in the 2024/25 financial year.
Based on its latest economic outlook, the World Bank urged Kenya to continue with fiscal consolidation while carrying out reforms that can support long-term growth. It recommended strengthening revenue collection, improving the efficiency and transparency of public spending, and maintaining prudent debt management to restore fiscal sustainability.
The lender also called for reforms that encourage private sector investment, raise productivity, and create more quality jobs.
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