Macro gains, micro struggles define 2025, as Kenya faces uneasy new year

National Treasury Cabinet Secretary John Mbadi during the launch of the Kenya Economic Report 2025, in Nairobi. [Wilberforce Okwiri, Standard]

2025 ends and 2026 begins as the Kenya Kwanza administration’s fourth calendar transition.

New Year’s Day will mark 1,241 days (41½ months) since the August 2022 election, and 586 days (19½ months) to its August 2027 equivalent. It will also be 555 days since June 25, 2024 and 300 days after the UDA/ODM broad-based MoU was signed. We will return to timeframes later. 

However, an immediate question might be if 2026 is the year to launch brand new initiatives or to consolidate gains made.  Does our love for new things devalue the power of momentum built? 

Let’s do something different with a quick view of how 2025 is closing and what 2026 portends.  We will rely on perceptions, to accord with the seasonal mood, on five perspectives; three of which relate to the economy, with the last two looking at governance, then peace & security. We will also be speculative on 2026, with one or two things to watch or hope for in each area. 

First is the “macro-economy” we say we don’t feel. We close 2025 in a reasonably stable macro-position (exchange/inflation/interest rates, forex reserves etc). And while real GDP growth will, yet again, fall short of the original medium-term (MTP IV) 6.3 per cent target, one suspects we will end the year meeting or exceeding the Treasury’s current 5.3 per cent expectation based on performance in the second half (Q3 and Q4) of the year. Think “broad-based” growth across agriculture, industry (utilities and construction, plus a manufacturing uptick) and all key services. 

The draft 2026 Budget Policy Statement (BPS) signals an intention to remain on the path of macro-stability next year, but keeps the annual growth target at 5.3 per cent all the way to 2030. This despite positive expectations around rising agriculture production and productivity, the resilience (and growth) of services and implementation of BETA priorities (like affordable housing). 

Let’s speculatively bump this up to 5.8 per cent (assuming good weather for agro).  Part of this is end-2025 momentum including greater manufacturing access to credit and more construction in expanding affordable housing rollout. The other part is fast-tracked infrastructure, especially roads, projects.  Two things to quietly watch for: progress in the petroleum and mining sectors, plus high (foreign) investment inflows in multiple sectors after 3 years of “signing deals for Kenya”. 

It is argued that the “macro” achievements above are not translating to the “micro” level.  On one hand, “business is suffering”. On the other, “we don’t eat GDP.” Let’s simplify to households and three of their five basics; food, basic rights and income opportunities/access to assets (the other two are participatory governance and safety, security & accessible justice – covered later). 

What does the closing 2025 picture look like?  To begin, cost of living remains the key issue concerning Kenyans. Food is an important part of this cost; staple food (maize/unga) prices have fallen but the real household concern today is income and asset opportunities – think of our perennial food insecurity issues.  This mixed household picture is equally evident on basic rights – think of Article 43 – around education, healthcare, water, sanitation and social protection. 

Despite the quantum of public spending in these sectors, 2025 ends with the perception of an administration unable to qualitatively fulfil socio-economic rights or facilitate socio-economic opportunities at sufficient levels of public satisfaction (or reduced levels of endless public outcry). 

It is unlikely that this “micro” view of the economy, or socio-economy, will change significantly in 2026.  To get there, this administration needs to move beyond viewing Kenyans as individuals or citizens (which is a start) to this household, even family, economic lens.  Beyond this household view, we have two related things to quietly hope for: realistic, fully costed and financed socio-economic rights “packages” (education, healthcare, social protection) going into the 2026/27 budget with an intergenerational lens; and very hopefully, “few to zero” labour disputes. 

We are still in the season of hope, and the third inter-related economic dimension relates to the fiscus (tax, spending and debt). This dimension is covered separately to remind us that, although the government has an outsized impact and influence on the economy, it is not the economy. 

As 2025 closes, it is fair to observe that, in and of itself, the state of the fiscus is Kenya’s greatest current challenge. The way to think about the current debt trap we are in is to consider this.  

Rising year on year revenues are not meeting target, creating shortfalls necessitating spending cuts, except that our spending envelope (particularly the wage bill and debt service) is largely fixed, and must be paid, so it’s development and social spending (see socio-economic rights above) that either suffers (as does devolution), or needs new borrowing to keep it going. It’s a cycle. 

The draft BPS essentially confirms that this cycle will continue into 2026/27 and beyond. But it is unusually bearish on revenue collection (or extraction) from the economy, despite hoping for success from the National Tax Policy, Medium-Term Revenue Strategy (MTRS), tax administration reforms and scaling up non-tax revenues.  Something is off with this picture. 

Which is not to suggest that the spending side is fine; even for the best of intentions, it suffers low quality and progressivity (targeting and impact).  Spending reform remains littered with the usual slogans - single treasury account, accrual accounting, zero-based budgeting, state owned-enterprise reforms, public investment management reforms, pension reforms and the like. 

What the data tells us is it easy to be more pessimistic on the fiscus than the wider economy, which appears contradictory.  There are two things to watch for: continued use of clever financial engineering, including new funds, to pay for presumably viable investments given our debt trap, and far more hopefully, an overarching public resource management framework and medium-term strategy that sits above the public finance management framework and the outgoing MTRS. 

The last two perspectives – governance, and peace & security – should be viewed as enablers of the earlier three on the economy. 2005 ends with a frightening long-term picture offered by the largely civil society Okoa Uchumi Coalition in their “People’s Audit” report as a shadow governance and corruption diagnostic on Kenya.  The basic message is that Kenya’s main economic and public finance problems are largely political, and nested in bad/weak governance. 

Although this perspective may not change dramatically in 2026, one thing to watch may be efforts to enhance public participation and service delivery, if not accountability, as governance initiatives. 

On the other hand, it ends with more encouraging signs on peace and security efforts, as documented in the 2025 State of National Security and Jukwaa la Usalama reports, the latter of which emerged from consultations across all of Kenya’s 47 counties. But security suffers the same problem as socio-economic rights, service quality doesn’t align with the quantum of effort. 

Expect, however, for peace and security to be a priority area (other than the economy) in 2026. What to watch: fast-tracked deployment of national government administration to the grassroots. 

Across these economic, governance and peace & security perspectives, it is a mixed balance of positives and negatives for 2025, but it is possible to hope and speculate more positively for 2026. 

However, we haven’t factored an important wild card – the politics of 2027 and beyond. That’s a story for another day, but a final thing to watch is not just if, but how, 2026 begins to shape our long-run, and not simply short-term, politics, not just for a few months, but many years ahead.