Kenya is expected to dethrone Ethiopia as the region’s largest economy after Addis Ababa devalued its currency, Birr, as part of the conditions to secure financing from the International Monetary Fund (IMF).
In its latest World Economic Outlook, the IMF estimates that Kenya’s gross domestic product (GDP) will expand to $131.673 billion (Sh17.04 trillion) by the end of this year even as that of Ethiopia shrinks to $117.457 billion (Sh15.2 trillion), reflecting the weakening of Addis Ababa’s exchange rate.
The IMF estimates that Ethiopia’s nominal GDP—the value of all the goods and services in the economy— $143.123 billion (Sh18.525 trillion) above Kenya’s at $120.899 billion (Sh15.65 trillion).
However, the multilateral financier expects Kenya’s GDP to surpass that of Ethiopia, ending Addis Ababa’s three-year reign as the region's economic powerhouse.
Ethiopia had for a long time maintained a tight control on its exchange rate, giving its currency an artificially higher value and making its imports cheaper. This has raised fears among some observers that Ethiopia’s GDP is overstated.
However, as a condition for the Horn of Africa nation to secure a $3.4-billion (Sh440 billion) four-year IMF loan, Ethiopia loosened its grip on its exchange rate with the value of its currency falling by over a third against the US dollar since July last year.
Instead, Ethiopia switched to a market-determined foreign exchange, a major relief for some foreign companies such as Kenya Airways which had disclosed that it was having difficulty to unlock Sh1.5 billion frozen in Ethiopia due to foreign exchange restrictions.
Ethiopia, albeit it has a much lower per capita GDP compared to Kenya because of its huge population.
Ethiopia’s GDP per person in 2025 is also estimated to have dropped to $1,066.6 (ShSh130,060) from $1,320.16 (Sh170,881) while Kenya’s increased from $2,305 (Sh298,359.20) to $2,467 (Sh319,328), the IMF report shows.
While the Ethiopian currency, the Birr, weakened, the Kenyan shilling strengthened around 21 percent last year, making it the world’s best-performing currency.
The shilling was further bolstered when Kenya sold a $1.5 billion (Sh194.16 billion) bond in February, allowing it to increase its gross reserves. Higher diaspora remittances and exports receipts over the past year have also helped, according to Kenya’s Treasury.
Nonetheless, the IMF expects the Kenyan economy to grow at a slower pace of 4.81 percent compared to an earlier estimate in October last year.
But despite the uncertainty around the current tariff wars, the IMF foresees consumer prices to remaining stable with the average inflation rate, a measure of cost of living, set at 4.1 percent in 2025, down from a previous projection of 5.1 percent.
The global economy is expected to slowdown in the review period, reflecting the wider pessimism on international trade due to the adverse effects of the US tariffs.
“The downgrades are broad-based across countries and reflect in large part the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, heightened uncertainty, and deteriorating sentiment,” the IMF said in its April 2025 World Economic Outlook (WEO) report published on Tuesday.
The IMF does not, however, expect the global economy to slide into recession this year, and instead projects a growth rate of 2.8 percent—albeit a downgrade from 3.3 percent.
